Follow India Renewable Energy News on WhatsApp for exclusive updates on clean energy news and insights

India May Expand Sovereign Green Bonds Target for FY26

India's green financing efforts could see a major boost in FY 2025-26 as the government considers increasing its Rs25,342.31 crore target for issuing sovereign green bonds. This marks a shift from earlier discussions about relying on conventional bonds due to modest returns from green bonds. The final decision will depend on demand, policy initiatives, and project implementation timelines.

Green bonds, a type of fixed-income instrument, finance projects with positive environmental impacts. A key factor influencing the decision is India’s greenium—the premium investors accept for lower yields on green bonds compared to conventional bonds. While developed markets achieve a greenium of 3-8 basis points (bps), India’s greenium has remained at just 2-3 bps. However, rising investor interest in sustainable financing could improve these margins.

The government aims to "back-load" funds, meaning that a significant portion of green bond allocations will be directed toward the latter half of the fiscal year to match project execution timelines. This ensures that critical green infrastructure projects receive adequate funding when needed most.

Since the launch of sovereign green bonds, the Indian government, through the Reserve Bank of India (RBI), has issued about Rs58,000 crore in such bonds over the past three years. The decision to revise the FY26 target upwards will depend on investor demand and the evolving green finance landscape. If demand falls short, the government may resort to conventional debt instruments.

This potential increase in green bond issuance reflects India’s commitment to funding climate-related projects while aligning with global trends in sustainable financing.