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Sustainable finance and GSS+ bonds: State of the Market and Developments

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– Vinod Kothari and Payal Agarwal | corplaw@vinodkothari.com

The topic of sustainable finance has become as critical as sustainable development, since finance is the prerequisite for sustainable development. “Finance can play a leading role in allocating investment to sustainable corporates and projects and thus accelerate the transition to a low carbon and more circular economy. Moreover, investors can exert influence on the corporates in which they invest.  In this way, long-term investors can steer corporates towards sustainable business practices.”[1] Hence, there is momentum towards organising funds and resources to transition from low energy efficiency to high energy efficiency, or renewable energy devices.

The expression “sustainable finance” is broader, as it encompasses the use of ESG considerations in financing decisions.[2] However, sustainability bonds are capital market instruments issued with a stated end-use. The term GSS+ bonds, which has recently been much in vogue, has G, S, S and then augmented by the + sign. The components of “GSS+” are as follows:

G : Green

S: Social

S: Sustainability

+ :  Other labeled bonds, particularly, transition bonds, and depending on the usage, may also include sustainability-linked bonds.

The other labeled bonds may also include blue bonds, gender bonds, climate bonds, yellow bonds etc., although the same may already be covered under one of the components of the GSS bonds. For instance, blue bonds are taken as a part of green bonds, and gender bonds are taken as a part of social bonds.

GSS+ bonds are also called “thematic” or “labeled” bonds, with the use of their proceeds linked with the respective theme represented by such bonds. These expressions may be somewhat overlapping[3].

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India to bring its debutante sovereign green bond

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– Vinod Kothari | vinod@vinodkothari.com

This version: 31st January, 2023

Following the Sovereign Green Bond framework issued by the Govt of India, and in accordance with the calendar of events issued by RBI, the first tranche of the sovereign green bonds has been successfully issued by the Govt of India. Remarkably, the bonds achieved a greenium of 6 basis points against the expected 2-3 basis points, with the issue selling at a 5-6 basis points lower yield than the sovereign yield of similar tenure. The issuance was more than four times oversubscribed. The five-year bond was priced at 7.10% and 10-year bond at 7.29%, as per the auction results released by RBI. Indian government bonds with the same maturity period were trading at a yield of 7.16% and 7.35%, respectively, during the relevant period.

After the launch of the Sovereign Green Bond framework in November 2022, India has made its fast move for debuting with a Rs 16,000 crore green bond issuance, in two tranches,  in January and February 2023, according to an RBI announcement. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy. The details of such projects are not immediately available; however, going by settled Green Bond Principles , which has also been adopted by India’s own sovereign framework, these projects will be identified and ascertainable disclosed by the issuer in the offer documents[1].

The GoI green bonds will qualify as SLR securities. They will also be available for investment by non-residents on automatic route. There are two maturities – 5 years, and 10 years, each with a value of Rs 8000 crores.

Green bonds are a part of a larger category of sustainability finance instruments, including social, sustainability, transition or other various thematic bond issuances. Green bonds constitute the largest components of the so-called GSS+ bonds.

Green bonds are issued by financial sector entities, direct users as also by sovereigns. The issuance by sovereigns, such as the Government of India in the present case, is fair recent – Poland is said to be the first country in 2016 to have issued a green bond.

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