India’s sovereign green bonds face disappointing reception, highlighting challenges in climate finance

India’s ambitious foray into sovereign green bonds to fund climate-friendly projects has encountered challenges, with Chief Economic Adviser V. Anantha Nageswaran expressing disappointment over the minimal discount in yields compared to traditional bonds. The struggle to attract substantial private capital for climate finance has raised questions about the effectiveness of efforts to mobilize low-cost financing for green initiatives. In the second tranche of Rs 8,000 crore on February 9, 2023, the cut-off yield on India’s sovereign green bonds, spanning 5-year and 10-year papers, was only 2 to 4 basis points lower than traditional government securities of comparable maturity. The government had anticipated a higher ‘greenium’ or cost advantage to the issuer, leading to disappointment in the outcome. An amount of Rs 20,000 crore is set to be raised via sovereign green bonds in 2023-24, compared with Rs 16,000 crore in the previous fiscal year.

Chief Economic Adviser V. Anantha Nageswaran expressed disappointment, stating that much of the enthusiasm around attracting private capital for climate finance remains in the realm of discussions. Despite the efforts and costs invested in identifying projects and obtaining bond ratings, the green bonds’ discount in yields was only one to two basis points. This indicates that private capital might not be fully prepared to embrace the risks and opportunities associated with funding the energy transition.


The chief Economic Advisor suggested that if private capital hesitates due to perceived risks, further de-risking by multilateral agencies or sovereigns might be necessary. However, this comes with explicit costs, particularly considering the fiscal challenges faced by many countries post-pandemic. The lower-than-expected ‘greenium’ raises questions about the value of the government’s initiatives to secure low-cost financing for green projects.

Highlighting global challenges, an independent expert group under the G20 Indian Presidency estimated a need for an additional $3 trillion per year by 2030 to address urgent global challenges and sustainable development goals. While $2 trillion could come from domestic sources, the remaining $1 trillion, with more than half expected from private financing, poses a challenge. This underscores the need for financiers and developed countries to align with the principles of the Paris Agreement, acknowledging common but differentiated responsibilities.

Nageswaran emphasized that attracting private capital becomes even more challenging in the realm of climate adaptation. Unproven technology on a large scale and dependence on specific countries for resources create hurdles. Additionally, if all countries move towards net-zero goals simultaneously, the availability of private resources might become even more difficult, posing a significant challenge in the context of climate finance.

India’s experience with sovereign green bonds serves as a reflection of the broader challenges in climate finance. The struggle to secure a substantial ‘greenium’ highlights the complexities involved in attracting private capital for climate-friendly initiatives. As nations navigate the delicate balance between environmental goals and economic considerations, addressing these challenges becomes crucial for the success of green financing endeavors.