Financing the Future: The Rise of Green Bonds

Financing the Future: The Rise of Green Bonds

Introduction

In today's world, where climate change is no longer viewed as a distant threat but a given reality, the financial landscape is undergoing a silent revolution. The revolution taking shape is the proliferation of green bonds — a new class of debt instruments that finance environmentally beneficial projects and promote sustainability. Money raised from bonds is earmarked solely for projects such as renewable energy, clean transportation, sustainable agriculture, and climate-resilient infrastructure, unlike conventional bonds, where investor capital is poured into a wide range of investments. ⁽¹⁾
In 2007, a clutch of Swedish pension funds came to the World Bank and posed a challenge: they wanted to invest in climate-friendly projects, but they did not have a vehicle for doing so. The result was the first official green bond, issued by the World Bank in November 2008, which provided the prototype for sustainable investing in capital markets. ⁽²⁾ The bond defined eligibility criteria for green projects, introduced impact reporting and third-party verification, thereby establishing standards for transparency and accountability.
Today, green bonds have grown from a niche financial instrument to an international movement, backed by governments, corporations, and financial institutions that issue green bonds to finance climate-positive measures. According to the Climate Bonds Initiative, in 2024, more than $577 billion in green bonds were issued around the world. ⁽³⁾ Given the evidence attesting to the increasing urgency of the low-carbon transition, green bonds will emerge as one of the most powerful instruments in bringing society to terms with the trade-offs between environmental responsibility and financial viability.

Why Green Bonds Matter for the Future
As the effects of climate change accelerate, the world is running out of time, making the financing of green development projects more urgent than ever. This is a financing attempt to move towards a low-carbon, resilient economy. Green bonds are not just about the capital; they are about reorienting the future towards finance and development.

Climate Action Financing
Green bonds essentially finance many areas related to climate change mitigation and climate change adaptation. They provide financing for a wide range of projects, from solar farms and wind parks to flood-resilient infrastructure and sustainable agriculture. The Climate Bonds Initiative estimates that green bonds and related financial instruments have already committed over $3 trillion to sustainable projects. ⁽⁴⁾ The finance gap, however, is still enormous. According to the UN, “The new goal calls on developed countries to take the lead in mobilizing at least $300 billion per year for developing countries, within the context of a wider goal involving all actors to scale up financing to developing countries to at least $1.3 trillion per year by 2035.” ⁽⁵⁾ Green bonds provide investable solutions to close this gap, especially when implemented in combination with public sector participation and innovative financial schemes.

Alignment with SDG Goals
Green bonds are directly aligned with the United Nations' Sustainable Development Goals (SDGs), especially with the following three:

·       SDG 7: Affordable and Clean Energy

·       SDG 11: Sustainable Cities and Communities

·       SDG 13: Climate Action

By limiting the spending of proceeds for projects such as clean water systems, green buildings, and low-emission transport, green bonds help countries and corporations achieve their respective sustainability targets. Added to that, the International Capital Market Association (ICMA) has mapped the green bond categories against the specific target requirements of the SDGs, further reinforcing the green bonds' role toward strategic global development. ⁽⁶⁾

An Investor Attraction and ESG Momentum
The move of ESG investing has turned demand toward green bonds. Institutional investors, pension funds, and asset managers put their interest in instruments that provide both financial return and environmental impact. ESG-linked assets are expected to exceed $40 trillion globally by 2025, reflecting a paradigm shift in investment motivation. ⁽⁷⁾ With the noteworthy demand coupled with transparency and impact reporting, green bonds tend to offer a greenium, meaning they are eligible for superior pricing owing to the high demand, and hence are more appealing to both ethical and profit-seeking investors. ⁽⁸⁾

Spotlight on India
India is quickly becoming one of the world's leading powers in sustainable finance, with its green bond market racing ahead, particularly in sectors such as renewable energy, clean transport, and infrastructure. Solar parks in Gujarat and metro rail expansions in city centers are just a few examples of the low-carbon transformation underway across the subcontinent, driven by green bonds.
A strong combination of regulatory innovation and government ambition supports the pace. In 2017, the Securities and Exchange Board of India (SEBI) introduced green bond guidelines, and in 2023, the Reserve Bank of India (RBI) released a framework for sovereign green bonds. These actions not only brought India into line with global best practices but also welcomed foreign investment. ⁽¹²⁾ As much as ₹20,000 crore is to be issued by the government in FY25 itself in sovereign green bonds in four tranches. ⁽¹³⁾
Private companies are also joining in. Adani Green and NTPC Green Energy, for instance, have sold multi-billion-dollar green bonds to support hybrid energy parks and clean mobility projects. ^{(14) (15)} Municipal corporations, ranging from Indore to Chennai, are using green bonds to support urban sustainability projects. ⁽¹⁶⁾
According to Climate Bonds and MUFG, “By the end of December 2024, Climate Bonds had recorded cumulative aligned GSS+ volume of USD55.9bn originating from India. This represents an increase of 186% since the last Climate Bonds report on India in 2021, when cumulative aligned volume stood at USD21.4bn.” ⁽¹⁷⁾According to experts, this increase makes India an attractive, sustainable investment choice with diversified prospects across sectors such as green hydrogen, energy-efficient buildings, and low-carbon manufacturing.
India's green bond market presents not only returns but also impact as investors worldwide look for climate-aligned assets.

Challenges and Limitations
Green bonds may be gaining traction, but several structural impediments slow down their march toward sustainable financing.

·       Standardization Concerns
Some of the most troubling issues are with a taxonomy that defines what is and is not green. Because of the lack of consistent definitions, confusion surrounds issuers and investors, and thus, the risk of market fragmentation increases. Major frameworks exist, such as the Climate Bonds Standards and SEBI’s ESG guidelines, but the extent of their application and interpretations varies widely. This ambiguity threatens to undermine the credibility of green bonds and prevent cross-border investments. ⁽¹⁸⁾

·       Transparency and Risk of Greenwashing
Transparency, nonetheless constitutes another major hurdle. Larger issuers may enjoy better levels of post-issuance reporting and third-party verification, but certification of `greenness’ may be absent altogether for many smaller intermediate issuers. This opens further possibilities for greenwashing, where projects declared as `green' may have limited environmental benefits in reality. The NLIU Law Review points out that sovereign green bonds in India come under the scanner due to vaguely defined allocation practices and limited accountability mechanisms. Investors are also increasingly demanding clear disclosures to ascertain that their capital goes towards making a real impact. ⁽¹⁹⁾

·       Market Size and Liquidity Constraints
According to, The Energy and Resource Institute, “In India, the overall green bonds’ issuances with an approximate worth of USD 21 billion (as of Feburary 2023; World Bank, 2023) make only 3.8 percent of the total outstanding domestic corporate bonds with a cumulative worth of over USD 500 billion (The Economic Times, 2023).” ⁽²⁰⁾ With hardly any liquidity and high costs of issuance, it becomes increasingly difficult for those small issuers to get involved, while investors generally face challenges trading such instruments.
The full potential of green bonds can only be realized if these issues are addressed. Standardized definitions, transparent reporting, and incentives to encourage wide participation will work together to scale the market and ensure it meets international climate promises.

Regulatory Frameworks and Principles

Evolving into a more mature and credible green bond market, India's green bond market now stands on an increasingly stronger regulatory framework that is credibly, transparently ensuring the confidence of investors.

Green Bond Principles (GBP): Global Standard
The Green Bond Principles, developed by the International Capital Market Association (ICMA), serve as the globally recognized voluntary guidelines for issuing green bonds. This has been historically anchored on four pillars: use of proceeds, project evaluation, management of proceeds, and reporting. It has also been updated in 2025, now allowing the “Green Enabling Projects” included in the GBP while highlighting transparency and third-party verification to prevent greenwashing. ⁽²¹⁾

Regulatory Backbone of India
The country has progressed significantly in the direction of adopting global standards. SEBI released its first circular on green bonds in 2017 and updated it in 2023. The latest ESG Debt Securities Framework (June 2025) calls for third-party reviews, post-issuance reporting, and international taxonomies such as ICMA's GBP and Climate Bonds Standard. These measures will institutionalize trust and ensure the delivery of a measurable environmental impact through green bonds. ⁽²²⁾

Emerging Policies on Sustainable Finance
The policy architecture for India is evolving quite rapidly. The Viksit Bharat program and the Task Force on Sustainable Finance, among other initiatives, are funneling more capital into climate-aligned projects. Green finance ascribed by the Reserve Bank of India (RBI) has been termed a public policy priority, emphasizing fiscal green incentives as well as better data systems to scale up sustainable investments. ⁽²³⁾

Thus, these frameworks and policies will transform India's green bond market from a promising niche into a credible, scalable engine of sustainable development.

Future Outlook
The transforming green bond market is set for a defining decade and imposing experts' projections for growth as continued issuance of both cumulative sustainable debt issuance now above $55.9 billion. ⁽²⁵⁾

Growth Trajectory and ESG Integration
According to EY, “The market for green energy in India is expected to grow at a Compound Annual Growth Rate (CAGR) of 12% to 35% across segments like energy efficiency, green hydrogen, and circularity, offering strong returns and scalable opportunities.” ⁽²⁵⁾Green bonds are being integrated with broader ESG strategies, with the BRSR Core framework of SEBI nudging corporates to embed sustainability into their capital raising plans.⁽²⁶⁾

Innovation in Financial Instruments
The future is not only green, but it is blue and resilient. India is trying to introduce innovative instruments like blue bonds for marine conservation and climate resilience bonds for raising adaptation projects, such as flood-resistant infrastructure and sustainable agriculture. Vadodara is one of the municipalities that have already launched Asia's first Climate Bonds Certified green municipal bond, indicating a fresh momentum in urban finance. ⁽²⁵⁾

Net-Zero and Global Energy Transition
India's green bond market will be instrumental in achieving the country's ambitions of being net-zero by 2070. An estimated $2.5 trillion would be needed by 2030 for climate mitigation, and green bonds would provide a scalable solution to bridging the funding gap. ⁽²⁷⁾EY revealed that investments in India's energy transition, renewables, EVs, and green hydrogen have crossed the $62 billion mark emerging global leader in sustainable energy. ⁽²⁵⁾
As innovation meets ambition, India's green bond market is not only a financial tool; it is a catalyst for climate resilience and inclusive growth.

Conclusion
Green bonds are no longer a niche instrument but have evolved into an effective transformational force. In India, green bonds have moved on from renewable energy financing to being the very core of climate strategy, funding projects ranging from metro electrification to biodiversity conservation. Their real strength lies in the alignment of financial flows with green objectives, thus closing the gap between capital markets and climate action.
Their success depends on collaboration, such that creating enabling policies sits with the government, investors single out sustainability, and institutions ensure transparency and accountability. An example includes how the World Bank's support in establishing a sovereign green bond framework in India demonstrates how global partnerships can help fast-track domestic climate finance.⁽²⁸⁾
Thus, green bonds will form the spine of the resilient low-carbon future we need to create as climate urgency rises, with record heat in India and rising emissions.

Sources:

1.      The CEO Magazine, Green Bonds Explained – A Game-Changer in Sustainable Finance, December 27, 2024

2.      World Bank Group, From Evolution to Revolution-10 Years of Green Bonds, November 27, 2018

3.      Institute of Energy Economics and Financial Analysis, Green Bonds key to climate finance, but challenges remain, July 30, 2025

4.      Climate Bonds, Resilience Investing to Unlock Trillions in Climate Finance by 2030, September 25, 2024

5.      UN Trade & Development, Countries agree $300 billion by 2035 for new climate finance goal- what next?, December 10, 2025

6.       International Capital Market Association, Green, Social, and Sustainability Bonds: A high-level mapping to the sustainable development goals, June 2020

7.       IIM Bangalore and Ashok Leyland, Green Financing Options- A primer for Indian Companies, July 2024

8.      Springer Nature Link, Corporate Green Bonds: Understanding the Greenium in a two-factor structural model, August 02, 2021

9.      International Finance Corporation, Emerging Market Green Bond 2023, May 22, 2024

10.   Forbes, Beyond Sustainability: Why impact investing is smart business, July 31, 2025

11.   Global Edge, The rise of green finance in emerging markets, October 30, 2024

12.   Observer Research Foundation, Green Bonds: Financing the Renewable Era, October 08, 2024

13.   The Times of India, Central govt to issue Rs 20,000 crore ‘Sovereign Green Bonds’ in four tranches in FY25, September 27, 2024

14.   Financial Express, The Adani Green deep dive: why its hybrid plan has investors excited, August 10, 2025

15.   Business Standard, NTPC Green plans Rs 2,000-3,000 cr bond sale after RBI policy decision, August 05, 2025

16.   The New Indian Express, Chennai Corporation to issue Rs 205 crore green bonds for Kodungaiyur biomining project, July 31, 2025

17.   Climate Bonds, India’s Sustainable Debt State of the Market 2024, 2025

18.   Institute of Energy Economics and Financial Analysis, Green bonds key to climate finance, but challenges remain, July 30,2025

19.   NLR Blog, Sovereign Green Bonds: Assessing the Greenwashing Implications and Regulatory challenges vis a vis India’s Climate Goal Commitments, January 27, 2025

20.   The Energy and Resource Institute, Accelerating the Growth of Green Bonds in India, 2024

21.   ICMA, Green Bonds Principles (GBP), 2025

22.   The ESG Institute, India’s ESG Bond Revolution: Inside SEBI’s New Framework for Social, Sustainability, and Sustainability linked bonds, June 16, 2025

23.   The Reserve Bank of India, Green Finance in India: Progress and Challenges, January 21,2021

24.   Climate Bonds, India’s sustainable debt market tops USD 55.9 billion- new MUFG-CBI report maps rapid growth and pathways to 2030, June 27,2025

25.   EY, How India’s green investments are driving the energy transition in 2025, July 23,2025

26.   The Economic Times, Sustainable capital rising: How ESG bonds are shaping India’s debt market, August 05, 2025

27.    Outlook Business, Fragile Green Bond Market Exposes the Limits of India’s Net- Zero Push, May 1, 2025

28.   World Bank Blogs, India incorporates green bonds into its climate finance strategy, June 12, 2023

Disclaimer: This article is for educational purposes only and is based on publicly available sources. While efforts have been made to ensure accuracy, the content should not be considered professional advice.