Summary: Green bonds in India fund eco-projects like renewables and clean transport under SEBI rules. They are issued by the government, public, and private sector companies. Sovereign green bonds have the lowest risk, while corporate green bonds can provide better yields. Read on to know about the yields, risks, and investment options to invest in green bonds in India.
Quick Overview
- Green bonds are fixed-income debt instruments issued to fund environmentally beneficial projects, such as renewable energy, clean transport, energy efficiency, and sustainable waste and water management
- Green bond issuers must adhere to SEBI guidelines and use funds only for green initiatives
- These bonds typically provide coupon-based fixed returns like any other bond
- Green bonds appeal to Indian investors because they provide portfolio diversification and exhibit lower risks than stocks during market fluctuations
You review your portfolio, and everything looks standard: it has some equities, FDs, and maybe mutual fund investments. The returns are there, but every fixed-income option uses your money for something generic like general expenses or corporate expenditure.
Green bonds work like a regular bond, only the money is used for green initiatives, like solar parks, clean transport, or sustainable water. You earn fixed returns, subject to issuer terms, and the money funds green projects to support India in reaching net-zero by 2070.
In this blog, we explain what green bonds are, how they are different from standard bonds, the green bond options in India, and how to start investing in 2026.
Understanding Green Bonds and How They Work
Green bonds function as loans from investors to issuers for environmental projects. Such bonds follow global guidelines, such as the ICMA Green Bond Principles. These set standards for how funds are used, tracked, and reported by the issuer.
Green bonds can be issued by:
- Government: The central government issues sovereign green bonds via the Reserve Bank of India (RBI) to fund public renewable energy projects
- Corporates: Public and private sector companies issue green bonds to finance their renewable energy projects and green transitions
- Municipal authorities: Local urban bodies also offer green bonds to fund projects like sewage treatment and solar lighting to contribute to green initiatives
Corporate entities issue a significant portion of green bonds in India. For H1 FY27 (April-September 2026), the government plans to issue ₹15,000 crore in sovereign green bonds. This amount is part of the total revised gross borrowing of ₹16.09 lakh crore (through dated securities) and is used to fund eco-project participation via RBI Retail Direct auctions.
SEBI has outlined the following requirements for listed green bonds during its meeting with the Corporate Bonds and Securitization Advisory Committee (CoBoSAC):
- Money raised from bonds must be used only for green initiatives
- The issuer must publicly disclose the project evaluation and selection
- Management of proceeds must be transparent
- The issuer must provide updates on the results of the proceeds
For example, KPI Green Energy issued around ₹6.7 billion certified green bonds in September 2025 at 8.5% per annum at a credit rating of AA+(CE) (60-month tenure). Backed by a 110.7 MW solar IPP project (plus subsidiaries’ 34.7 MW), proceeds from these green bonds will be used to expand renewable assets in Gujarat.
The History and Evolution of the Green Bond Market
Green bonds were first issued in 2007. The European Investment Bank issued the first Climate Awareness Bond. The World Bank joined the fray in 2008, laying down the groundwork for today’s green bond structure. Initially, progress was sluggish.
The 2015 Paris Agreement changed that, and issuance exploded afterward. As of 2026, the global sustainable bond market (including green bonds) is expected to reach nearly $6 trillion in outstanding volume in 2027, with 2026 issuance forecasted to stabilize at $800-900 billion. Green bonds remain the largest segment of sustainable bonds.
Timeline:
- 2007: European Investment Bank launches first Climate Awareness Bond
- 2008: World Bank enters with green bond
- 2015: Paris Agreement boosts market
- 2026: Sustainable outstanding forecasted near $5.5–6 tn; issuance forecasted at $800-900 billion
How Green Bonds Differ from Regular Bonds
From the investment point of view, investing in green bonds is similar to investing in traditional bonds. Here’s how green bonds are different from regular bonds:
- Use of proceeds: Green bonds track every rupee to green projects; traditional bonds allow any corporate use, like debt repayment or marketing.
- Reporting: Green bond issuers are supposed to file annual environmental reports, for instance, on the amount of carbon emissions reduced.
- Credit risk: It depends on the overall success of the issuer as opposed to the green project itself.
- Tax treatment: Most corporate green bonds are fully taxable; some green municipal bonds may qualify for interest-income exemptions depending on government notifications, similar to India’s municipal-bond tax regime. IREDA currently issues 54EC bonds (under Section 54EC) which allow capital gains tax exemptions on property sales, though the 5.25% interest remains taxable.
Here’s a quick overview of the difference between green bonds and traditional bonds:
| Aspect | Green Bonds | Regular Bonds |
| Funds (Capital) | Environmental projects only | Any issuer’s purpose |
| Interest Payments | Fixed coupon schedule | Fixed coupon schedule |
| Oversight | Strict green standards | Standard financial rules |
The Landscape of Sovereign Green Bonds in India
Green bonds in India advanced significantly with the government’s sovereign green bond framework in 2022. Sovereign green bonds auctions are carried out by the Reserve Bank of India. The proceeds from these bond auctions are utilized to fund a wide variety of public sector initiatives that include building up metro rail infrastructure and renewable energy schemes. Metro rail falls under “Clean Transport” because it encourages public transport and helps reduce carbon emissions.
These bonds are typically considered safe by investors because they are backed by the Indian government. These instruments directly support India’s ‘Panchamrit’ goals, which target net-zero emissions by 2070.
Interest in green bonds in India continues to increase. Recently, in March 2026, Union Bank of India approved the issuance of ₹5,000 crore in green/sustainable bonds alongside ₹20,000 crore in long-term bonds, funding sustainable projects.
India’s Framework for Green Bond Proceeds
The Green Finance Working Committee (GFWC) manages green bond funds in India to finance renewable energy projects. The Ministry of Finance tracks proceeds to ensure that there are no diversions to non-green activities.
The selection of projects is based on their significant environmental impact, such as reduced emissions or conservation, while the exclusion of projects, such as nuclear energy, large dams, and tobacco farming, results from their complex risks.
Green bonds can be used to fund projects associated with
- Renewable energy
- Sustainable energy and energy efficiency projects
- Climate change adaptation
- Clean transportation
- Biodiversity conservation
- Sustainable water management
- Sustainable waste management
- Sustainable land usage
But, there are certain exemptions to these as well, listed below:
- Fossil fuel projects like coal mining, oil and gas extraction, and power projects using fossil fuels
- Nuclear energy projects
- Projects excluded under the framework include, tobacco, gambling, the palm oil industry, and weapons
- Projects involving high biodiversity risk or using prohibited chemicals
- Hydropower plants larger than 25 MW
- Landfill projects
Benefits and Risks of Investing in Green Bonds
Green bonds offer periodic income to investors based on coupon rates. The volatility of green bonds is considerably lower than that of stocks, and they behave differently from stocks in uncertain market conditions or economic recessions. In terms of yield, green bonds generate comparable yields to traditional bonds, depending on the issuer and structure.
However, some risks remain. Greenwashing is a primary risk, where issuers may overstate or exaggerate their environmental impact. Liquidity is another risk because green corporate bonds can lack liquidity. Issuer credit quality matters greatly.
| Pros | Cons |
| A consistent source of income for environmental projects | Risk of greenwashing, where issuers overstate environmental benefits |
| Typically lower volatility compared to equities, especially in unstable markets | Lower liquidity in the secondary market for some corporate green bonds |
| Asset diversification by class with equivalent returns to traditional bonds with similar credit quality and tenure | Credit risk is linked to the issuer’s overall financial health |
How to Invest in Green Bonds in India
Before committing capital, it’s smart to verify the bond’s green credentials. A second-party opinion (SPO) from a recognized reviewer or certification from the Climate Bonds Initiative confirms the framework has been independently assessed. If neither appears in the offer document, the green label is the issuer’s own claim.
You can follow these steps to buy green bonds:
- Register on RBI Retail Direct: Create your account on the RBI Retail Direct portal and get direct access to sovereign green bonds during primary auctions, with no broker required at any stage.
- Target sovereign auctions: Bid in RBI auctions for bonds that fund renewable energy and infrastructure. These carry the same government repayment guarantee as any other sovereign security.
- Buy corporate green bonds: Jiraaf and similar platforms list investment-grade corporate green bonds. Rates on current listings range from 8% to 14%, with the spread reflecting issuer quality and tenure rather than the green label itself.
- Stick to SEBI-registered OBPPs: Jiraaf is SEBI-registered as an online bond provider platform (OBPP). That registration means each listed instrument clears a regulatory threshold before retail investors can access it.
- Use bonds to steady a volatile portfolio: Green bonds pay fixed, scheduled cash flows. This predictability leads to their inclusion alongside equities, where returns are neither fixed nor guaranteed.
Conclusion
Green bonds combine financial benefit with environmental factors. They provide investors with a way to earn a periodic income while supporting renewable energy projects nationwide. In 2026, many modern bond portfolios include green bonds. Accessible to retail investors and less volatile than equities, green bonds offer both financial stability and a measurable real-world impact. They are often included to create a diversified investment portfolio and help achieve India’s environmental goals.
Discover different types of investment-grade debt instruments on Jiraaf. Explore corporate bonds from leading businesses committed to sustainable green projects.
