04/10/2019 - Environment | Mainstorming

IAS Parliament 5 years

KEY POINTS

· Responding to environmental problems used to be an unappealing, no-win proposition for managers, and economic forces at work.

· Financing, which is normally considered a passive activity, can contribute a lot towards reducing the cost of doing business in a greener way. Green Bonds have emerged as an innovative way to fund green projects. These can reduce the cost of capital and, thereby, improve returns.

· The latest success story comes from Russian Railway, whose eight-year green bond raised €500 million, and was priced at 2.2%. The issuance was oversubscribed with an order-book of over €1.8 billion. The capital raised will be used to purchase electric trains as part of a modernisation programme.

· Transport, the second largest contributor to global GHG emissions, is responsible for 23% of all energy-related carbon dioxide emissions globally, and 14% of total GHG emissions.

· Road transportation remains the primary source of emissions in the sector, and is responsible for 73% of the carbon dioxide emissions.

· Hence, leveraging debt capital markets towards sustainable transport infrastructure development and services has enormous potential to help achieve climate goals. 71% of the climate-themed bonds issued relate to low-carbon transport.

· This is largely due to a number of rail issuers, which have a long history of using bonds to raise finance. As per the Climate Bonds Standard and Certification Scheme of “Climate Bonds Initiative”, there are certain areas which are most likely to get acceptance in the green bond market.

· The electric vehicles industry is one of the thrust areas, and the 2019-20 Budget has announced fiscal incentives and measures to ease regulatory hurdles.

· The Railways can play a huge role in combating climate change. Indian Railway Finance Corporation Ltd (IRFC) established a Green Bond Framework for fund raising.

· The proceeds were proposed to be used for financing the Dedicated Freight Corridor project and electrification of the railways.

· Adani Green Energy issued green bonds worth $500 million through India INX at a coupon of 6.25%, these were subscribed over three times, when most infrastructure companies struggled raising funds in India.

· The Economic Survey 2018-19 points out that India needs to almost double its annual spending on infrastructure at $200 billion, which will obviously require harnessing private investment.

· India is only putting $100-110 billion annually into infrastructure development which requires innovative approaches. Issuing green bonds overseas is one such approach in realising the goal of creating a clean environment.