Failure of India's Sovereign Green Bonds: What it Means for Sustainable Finance in Asia

SYNOPSIS

India’s Sovereign Green Bonds stumbled under market pressures, revealing how lofty environmental ambitions meet hard economic realities. Discover what this “stress test” means for the future of sustainable finance across Asia.

"Exploring the Challenges of Sustainable Finance: The Case of India's Sovereign Green Bonds in Asia"

India issued its first Sovereign Green Bonds (SGrBs) in 2023 to help bridge a $10.1 trillion climate finance gap beginning with a modest greenium of 5-6 basis points. The benefit was short-lived though as the Reserve Bank of India (RBI) came under investor pressure for more returns. RBI cancelled an auction scheduled for June 2025 when it was not willing to yield to such pressures. Investors valued more returns above taking on a greenium. But to describe this as a failure is not the entire story. The Indian experience has teachings for Asian sustainable finance. It demonstrates how environmental ambitions become bogged down when confronting the bitter realities of emerging markets.

The Anatomy of the Stumble

The greenium did not have a long lifespan because market risks emerged for three basic reasons.

• Macroeconomic Issues: Selling in India's domestic currency (INR) created issues. A rising rupee and rising oil prices added currency and inflation risk, causing investors to demand a premium. The green label did not address these issues.

• A Market That Is Not Yet Ready: There aren't quite so many investors in India concerned with environmental or social objectives. Banks and insurance firms are primarily focused on financial returns and less on sustainability. Since the bonds were difficult to sell, the investors demanded incentives.

• A Credibility Concern: The bonds were ranked 'Medium Green' by CICERO, who said the projects were diversified and there was some exposure to climate. Greenwashing was a worry. Besides, the funds went into projects already in the budget of the government, i.e., Metro Rail. Others questioned whether the bonds were funding anything new at all. Where auctions were troubling, the government resorted to normal funds. This made the green bonds appear to be nothing more than just another way of transferring money, not a way of raising new funds.

Lessons for Asia

India's experience altered regional expectations and provided some useful lessons –

The Greenium is an Added Bonus, Not an Assurance: It's a temporary advantage, not a promise.

• Stable Economy First: Green bonds cannot escape issues like currency risk or inflation. A stable, strong economy must come first.

• Credibility Matters: Investors need clear, evidence-based standards for green bonds, not hopeful rhetoric.

• Alternative Approaches: Chinese green bonds have succeeded outside Asia, while Indian domestic efforts were more challenged. This indicates that the approach of Asian nations toward green finance is alternative.

  
  

Finally, India's experience is a stress test, not a failure. Lessons can be drawn from the experience that can be utilized to refine India's strategy. To the rest of Asia, the case is a convenient guide to the ways in which green policy and market conditions can influence each other, a valuable lesson for the region.

Aaradhya Gupta