Indian cities, including smaller and medium cities, are gravitating towards adopting green bonds. For instance, the Raipur Municipal Corporation approved a Rs 2 billion green bond for sustainable projects, including a sports complex. While the Ghaziabad Municipal Corporation issued India’s first green bond, attracting international interest, Indore Municipal Corporation raised funds for a solar power plant in the Khargone district.

Green bonds are an emerging financial tool used to fund environmentally beneficial projects. Unlike regular bonds, green bonds are designated explicitly for initiatives like renewable energy, energy efficiency, waste management, and green infrastructure. Certifications like the Green Bond Principles (GBP) and Climate Bonds Standard ensure transparency and direct funding towards sustainable projects, reducing carbon emissions.

These bonds can offer various advantages to both issuers and investors. While they promote clean energy finance, they can also attract a broader investor base, and provide access to affordable, long-term capital. Additionally, green bonds can boost liquidity, enable refinancing for green investments, and cater to the rising demand for environmentally responsible assets.

Although green bonds have advantages, they face challenges that prevent their widespread adoption, particularly among smaller municipalities. These hurdles involve strict eligibility criteria, varying default definitions in regulations, restrictions on early buy-back, and a lack of security options.

Simple rules for credit ratings, tax breaks for the bonds, ensuring the safety of money with credit enhancement, and support from the state governments can increase green bond adoption in smaller cities. Educating stakeholders about green municipal bonds and offering other incentives can also promote participation.

Is your city planning for a greener future with sustainable projects? Have they considered using green bonds?