Close Menu
Fund Focus News
    Facebook X (Twitter) Instagram
    Trending
    • Green bonds: How to overcome the challenge of fading ‘greenium’
    • Stable ETFs, Payment Altcoins, and a Meme Coin That Pays You Back
    • Giants’ Willy Adames ends crazy drought with San Francisco history not done since Barry Bonds
    • Mexican government unveils $540M industrial hub to lure investments
    • ‘People Might Be Underestimating Demand For Spot XRP ETFs,’ ETF Expert Says As CME XRP Futures Set Open Interest Record
    • SoftBank, Rakuten tap Japan’s booming retail demand for bonds
    • Financial advice about living trusts, capital gains and COBRA
    • What is Expense Ratio in Mutual Funds? – Money Insights News
    Facebook X (Twitter) Instagram
    Fund Focus News
    • Home
    • Bonds
    • ETFs
    • Funds
    • Investments
    • Mutual Funds
    • Property Investments
    • SIP
    Fund Focus News
    Home»Bonds»Green bonds: How to overcome the challenge of fading ‘greenium’
    Bonds

    Green bonds: How to overcome the challenge of fading ‘greenium’

    August 31, 2025


    ‘Green’ bonds — meant to raise funds for environmentally friendly ventures — were seen as a critical financial innovation that brought in capital while also making an environmental impact.

    Cumulatively, global issuances of green bonds have surpassed $3 trillion, reaching $577 billion in 2024, yet they still constitute a modest 3 per cent of the bond market.

    India’s overall corporate bond market itself remains underdeveloped at approximately 17 per cent of GDP, which has restricted the growth of its green bond segment to about 4 per cent. Entities seeking to raise funds are often attracted to green bonds for the prospect of lower debt costs, signalling green commitments, and benefits in attracting ESG-focused investors. However, significant hurdles persist in harnessing their full potential, according to a note put out by Labanya Prakash Jena, Sustainable Finance Consultant at Institute of Energy Economics and Financial Analysis.

    He points out that the primary challenge lies in the high issuance costs associated with compliance, certification, and reporting. Smaller entities, in particular, find these costs too high to absorb, creating an uneven playing field that favours larger corporations or government bodies. Also, the lack of a global standardisation in ‘green’ definitions across geographies creates confusion for investors and issuers, he points out, coming in the way of comparability.

    Another worry, he says, is ‘greenwashing’ — misrepresentation of a bond’s environmental credentials, where proceeds may not genuinely fund green projects or deliver meaningful benefits — which dents investor trust and market credibility.

    Jena points out that large financial institutions that fund thermal power projects, but also seek to raise funds for green initiatives tend to confuse investors.

    He suggests that institutions and energy conglomerates commit to reducing carbon emissions from their loan portfolios or overall operations over time. “They may not be able to immediately abandon projects that spew high emissions, but by committing to a gradual lowering of revenue from such projects, they send a signal to the market.”

    Compliance, including need for impact reports, after bond issuance also deters companies seeking to raise funds, especially from developing countries where technical expertise and resources are not easily available.

    The other factor under scrutiny from investors is the ‘greenium’ or green premium — the lower yield historically accepted by those investing in green bonds.

    Jena says recent studies show this premium is diminishing, or even become negative, at -5 to -2 basis points across currencies and credit ratings. Obviously, investors are less willing to settle for lower returns without a clear reduction in financial risk.

    If this trend keeps up, warns Jena, issuers may begin to opt for conventional corporate bonds. Benefits that do not directly buoy the financial aspirations of investors, such as enhanced reputation, may not be enough to justify the additional cost of green bond issuance, he says.

    Jena prescribes four key changes in policymaking to rectify market failures and spur demand:

    Mandating large institutional investors such as pension funds, insurance companies, and mutual funds to allocate a small percentage of their capital to green assets.

    Improving the credit quality of green bonds through mechanisms like partial credit guarantees from the government to attract institutional investors seeking higher credit ratings (AA or above). Hedging against potential defaults, this can enhance bond ratings.

    Mitigating counterparty risk posed by government entities (such as power distribution companies, or discoms) in renewable energy projects. Mechanisms like those offered by Solar Energy Corporation of India (SECI), which guarantees payment if discoms default, or tripartite agreements involving the RBI and State governments, can significantly reduce counterparty risk for developers and investors.

    Promoting long-duration bonds (15 years or more), as climate change risks are more likely to materialise over extended periods. Longer-duration bonds prove more attractive to investors seeking to mitigate transition risks in their portfolios, potentially boosting green premia.

    More Like This

    Published on September 1, 2025



    Source link

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Telegram Email

    Related Posts

    Giants’ Willy Adames ends crazy drought with San Francisco history not done since Barry Bonds

    August 31, 2025

    SoftBank, Rakuten tap Japan’s booming retail demand for bonds

    August 31, 2025

    Hong Kong reduces coupon in 10th batch of Silver Bonds ahead of Fed’s expected rate cut

    August 29, 2025
    Leave A Reply Cancel Reply

    Top Posts

    Planning Rs 10 crore retirement? Here’s how much SIP you need if you start at 25, 30 or 40 – Money News

    July 21, 2025

    The Shifting Landscape of Art Investment and the Rise of Accessibility: The London Art Exchange

    September 11, 2023

    The Unyielding Resilience of the Art Market: A Historical and Contemporary Perspective

    November 19, 2023

    The Evolution of Art and Art Investments: A Historical Perspective on Fruitful Returns and Wealth Management

    August 21, 2023
    Don't Miss
    Bonds

    Green bonds: How to overcome the challenge of fading ‘greenium’

    August 31, 2025

    ‘Green’ bonds — meant to raise funds for environmentally friendly ventures — were seen as…

    Stable ETFs, Payment Altcoins, and a Meme Coin That Pays You Back

    August 31, 2025

    Giants’ Willy Adames ends crazy drought with San Francisco history not done since Barry Bonds

    August 31, 2025

    Mexican government unveils $540M industrial hub to lure investments

    August 31, 2025
    Stay In Touch
    • Facebook
    • Twitter
    • Pinterest
    • Instagram
    • YouTube
    • Vimeo
    EDITOR'S PICK

    Why property investment is a top long-term venture

    October 24, 2024

    HDFC Defence Fund gave 145% return before restriction on fresh investment kicks in

    July 11, 2024

    Solana ETF Prospects Fizzle as Cboe Removes Key Applications

    August 19, 2024
    Our Picks

    Green bonds: How to overcome the challenge of fading ‘greenium’

    August 31, 2025

    Stable ETFs, Payment Altcoins, and a Meme Coin That Pays You Back

    August 31, 2025

    Giants’ Willy Adames ends crazy drought with San Francisco history not done since Barry Bonds

    August 31, 2025
    Most Popular

    🔥Juve target Chukwuemeka, Inter raise funds, Elmas bid in play 🤑

    August 20, 2025

    ₹10,000 monthly SIP in this debt mutual fund has grown to over ₹70 lakh in 23 years

    June 13, 2025

    ₹1 lakh investment in these 2 ELSS mutual funds at launch would have grown to over ₹5 lakh. Check details

    April 25, 2025
    © 2025 Fund Focus News
    • Get In Touch
    • Privacy Policy
    • Terms and Conditions

    Type above and press Enter to search. Press Esc to cancel.