HDFC Asset Management Company (AMC) has filed for India’s first target maturity funds (TMFs) tracking sovereign green bonds (SGrBs). The two are HDFC Nifty India Sovereign Green Bond Jan 2028 Index Fund and HDFC Nifty India Sovereign Green Bond Jan 2033 Index Fund.
A filing with the Securities and Exchange Board of India (Sebi) is seeking to “combine an innovative method of financing – sovereign green bonds, with an innovative debt product – TMFs.”
“The launch of these schemes will expand the suite of HDFC MF Index Solutions, and allow a wide audience of investors to invest in Sovereign Green Bonds and contribute towards a greener planet,” the filing said.
SGrBs are similar to regular Government securities (G-secs) in that they have practically nil default risk since they are backed by the Government of India. The yields of SGrBs are currently broadly similar to those of regular G-Secs. Thus, ESG-conscious investors who want their savings to be utilised to improve the environment and address climate change can consider investing in SGrBs.
Examples of green projects include those in renewable energy, clean transportation, green buildings, sustainable water and waste management, pollution prevention and control etc. Projects related to nuclear power, alcohol, gaming, weapons, tobacco etc. are not eligible.
Of late, green and blue bonds have caught the fancy of investors and the market.
In this regard, Sebi also came out with a circular on February 3, 2023, outlining the criteria that issuers of green debt securities should follow to avoid greenwashing.
The term greenwashing refers to falsely claiming that a company’s products, services, or business operations are more environmentally-friendly than they actually are. Companies which engage in ‘greenwashing’, mislead the market participants who buy these securities.
Sebi has broadly defined a green debt security as one that is issued for the purpose of raising capital to be used for the cause of sustainable development or furthering energy efficiency.
Sebi said in the circular that an issuer of green bonds shall not use misleading labels, hide trade-offs, or, cherry pick data from research to highlight green practices, while obscuring others that are unfavourable. It also asked issuers to ensure that they continuously monitor the transition to a more sustainable form of operation.
Sebi further told issuers that if they notice capital raised from green bonds is being invested outside of the above-mentioned asset classes, they should inform investors and allow for early redemptions if majority of investors demand it.
According to data from Sebi, under the Sebi framework for green bonds, 14 issuers have raised Rs. 4,539 crore as on June 30, 2022. Indian companies raised nearly $7 billion through ESG and green bonds in 2021, compared to $1.4 billion and $4 billion in 2020 and 2019, respectively.
According to Sebi’s consultation paper, most of the green bonds issued by Indian issuers are listed on offshore exchanges.
The government also issued the Green Bond Framework in November 2022 to allow investors to understand the processes and disclosures that will be followed for the issuance of such bonds.
The Union Ministry of Finance has constituted a “Green Finance Working Committee” (GFWC), which will meet at least twice a year to support the Ministry of Finance with the selection of projects related to the Framework. The proceeds will be deposited to the Consolidated Fund of India (CFI) in line with the regular treasury policy, and then funds from the CFI will be made available for eligible green projects.
To ensure that the funds raised by issuing SGrBs are used in a transparent manner, a separate account within the Consolidated Fund of India (CFI) will be created and maintained by the Ministry of Finance. Furthermore, the government shall provide investors with transparent reporting on the allocation of proceeds of sovereign green bonds as well as on the environmental impact of projects funded by the proceeds.
