INDIA is testing the waters of a sluggish global green bond market with its debut sale this month, with the aim of raising US$2 billion for sustainable projects.

Officials have been clear they want a significant green premium, or “greenium”, for the sale, to lower the nation’s borrowing costs. That will require attracting enough foreign investors to the rupee-denominated debt.

Green bond sales dropped for the first time in a decade in 2022. Companies and governments worldwide raised a total of US$863 billion in green, social and sustainability-linked bonds, a 19 per cent drop from the record US$1.1 trillion in 2021, according to data compiled by Bloomberg. This came as monetary policy tightening hit issuance, and as asset managers came under fire for alleged greenwashing.

So far this year, at least two governments have tapped the green bond market. Hong Kong sold the equivalent of US$5.8 billion of debt across three currencies. while Ireland pulled in 35 billion euros (S$50.1 billion) of orders for a 3.5 billion euro sale of 20-year bonds.

Now, India is putting its first sovereign green bond on the radar of some of its biggest domestic asset managers to drum up demand, said people familiar with the matter. They added that the managers include state-run insurers and pension funds, as well as foreign investors from Japan to the UK.

Corporate issuers in India have not always found it worth the cost and effort to get a green tag on their debt, given the absence of domestic environmental, social and governance (ESG) debt funds. The establishment of a clear benchmark with a sovereign bond and the potentially greater investor interest it may bring could change that.

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Nicole Lim, fixed-income ESG analyst at Abrdn in Singapore, said: “We could possibly see quite a healthy level of interest, especially from the domestic investors.”

India plans to sell the bonds in two auctions, on Jan 25 and Feb 9. Companies in the South Asian country have issued more than US$26 billion of the debt, mostly for renewable energy projects.

While India may be a latecomer to the green bond market in Asia, sovereign issuers are still a select club outside Europe. This could burnish the appeal of its sale for foreign investors with a green mandate, despite the exchange rate risks that come with a rupee-denominated bond.

Raising sufficient funding at a low cost will be crucial for meeting the country’s renewable energy goals. It still relies on fossil fuels for over half its energy needs.

Besides building renewable power capacity, money raised from the sale may be used to boost India’s infrastructural resilience to rising temperatures and extreme weather.

Globally, funding for climate adaptation has fallen far short of a 50-50 split with mitigation, which aims to reduce emissions. The target was part of the 2015 Paris Agreement. BLOOMBERG