General
India’s Environmental, Social, and Governance (ESG) bond market is steadily coming of age. Once seen as a niche segment, ESG and green bonds are now drawing increased interest from global investors, corporate issuers, and regulators alike.
This evolving landscape is being shaped by supportive policies, a growing commitment to sustainability, and rising demand for impact-linked investments.
General A market on the move
According to Vineet Agrawal, Co-Founder of Jiraaf, the momentum behind ESG bonds in India is unmistakable. “Rising global investor interest in sustainable assets, coupled with a progressive domestic regulatory environment, is helping this space grow,” he says.
Regulatory pushes like SEBI’s Business Responsibility and Sustainability Reporting (BRSR) Core framework and the RBI’s green finance guidelines are nudging Indian corporates to integrate ESG factors into their capital-raising strategies.
Sectors such as renewable energy, clean mobility, and infrastructure finance are already leading the way. A case in point: Larsen & Toubro (L&T) issued its first Rs 500 crore ESG bond recently—a significant move that signals the entry of India’s biggest conglomerates into sustainability-linked financing.
“As ESG considerations become mainstream, more Indian corporates are expected to follow suit,” adds Agrawal.
General Still early days in fixed income
While global markets have embraced ESG investing—especially in fixed income—India is still finding its feet, says Gautam Kaul, Senior Fund Manager – Fixed Income at Bandhan AMC. “In India, we are at an early stage of the ESG investing platform. The equity side is getting more traction, but fixed income is still nascent.”
However, the signals are encouraging. Private corporations and the Government of India have started issuing ESG and green bonds. The government’s Sovereign Green Bonds (SGrBs) alone have raised close to Rs 57,697 crore through FY25.
Yet, Kaul notes that domestic demand is limited, with foreign institutional investors currently dominating the buyer side of the market.
Kaul also touches on the pricing of ESG instruments. “Is the market paying a significant premium for ESG bonds? Selectively, yes,” he says. “The greenium—or the yield differential—between green and regular government bonds is around 5 basis points. It’s modest now, but could widen as the market matures.”
General A structural shift is underway
The trajectory of India’s green bond market has been upward since 2017, following SEBI’s introduction of formal green bond guidelines. This laid the groundwork for greater participation and accountability, says Nikhil Aggarwal, Founder and Group CEO of Grip.
He points out that globally, the green bond market not only scaled new highs in 2024 but also outperformed conventional bonds by nearly 2%.
In India, the pace picked up further with the government’s foray into green bond issuance. Institutional investors—mutual funds, banks, and insurers—are increasingly aligning their portfolios with ESG objectives, spurred by both regulation and a broader shift toward sustainable investing.
“SEBI’s strict disclosure and verification requirements add credibility, offering investors confidence that their money is driving genuine environmental and social impact,” says Aggarwal.
General Future drivers of ESG bond issuance
Aggarwal highlights several sectors that are particularly well-suited to tap into the growing ESG bond market:
- Infrastructure & Urban Development: Projects like metro rail, highways, smart cities, and clean water are natural fits for sustainability-linked financing.
- Renewable Energy & Clean Tech: Solar, wind, hydro, and EV mobility companies directly support India’s net-zero goals and are key issuers of green bonds.
- Social Infrastructure: Affordable housing, hospitals, sanitation, and education projects provide clear social impact, making them ideal for social bonds.
- BFSI Sector: Banks and NBFCs with ESG frameworks can issue their own bonds or serve as conduits for channeling capital into green and social initiatives.
- Large Listed Corporates: The top 1,000 listed firms already complying with SEBI’s BRSR norms are better positioned to meet ESG disclosure demands and raise funds via sustainability bonds.
General Looking ahead
India’s ESG bond market may still be in its formative years, but the foundation is strong. Regulatory frameworks are maturing, investor interest—especially from abroad—is rising, and corporate issuers are beginning to see ESG bonds as a viable and strategic funding tool.
With climate commitments becoming non-negotiable and global capital increasingly prioritising sustainability, India’s ESG bond market is poised not just to grow—but to transform the broader landscape of fixed income investing.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)