Bonds_ Lit review _ progress summary report

Green Finance related

1. Green Social Sustainable (GSS) Bonds Literature Review Study 1 Patham/ Sep 2023

2. What is GSS Bonds Any type of bond instrument where proceeds will be exclusively applied to finance or re-finance any new or existing environmentally focused projects It is a Fixed-income Debt instrument Green Bonds: these are the Bonds with proceeds earmarked for positive environmental impact projects like renewable energy, Green buildings, sustainable water, or clean transportation. Social Bonds: The bond proceeds are invested in activities that will bring positive social impacts, such as investment that targets poverty or provides access to essential services, affordable housing, education or healthcare Sustainability Bonds – the bond with proceeds earmarked for projects aimed at generating positive environmental and social impact (a combination of green and social activities described above). 2

3. What is Sustainability-linked bonds? Sustainability-linked (SLB) bonds – the bond proceeds from issuance are not ring-fenced to green or sustainable purposes, unlike “use of proceeds” green bonds or sustainable bonds SLB issuer makes a commitment to achieve pre-defined key sustainable performance targets, and the financial characteristics of the bond depend on the achievement of key performance indicators (KPIs) and the proceeds at may be used for general corporate purposes SLB are a forward –looking performance based Debt instrument Penalties apply to SLB in case if the target performance is not achieved 3

4. Why Green Bonds It is low-cost long-term debt Green Bonds being a tradable instrument, there is improved liquidity hence exit for investors during any time post-investment is possible, thus allowing for flexibility in managing liquidity requirements on a short-term basis. Such flexible instruments attract a larger pool of investors . Increased Capital Acess Financing across development stages : Green Bonds facilitate access to capital for various development stages FI can overcome Self-imposed sector limits, which restrict over-exposure to a particular sector. With Green Bonds, FIs have the option to offload holding assets through specific portfolio issuance, thereby allowing the institutions to adhere to the sector limits while deploying bond proceeds into new projects. Ability to manage asset-liability mismatch at FI since Bonds are long-term 4

5. Market overview The cumulative amount of GSS bonds issued was USD 3.8 trillion at the end of 2022. Green bonds represent 64% and emerging market issuances 16% of the total amount. In 2022, GSS bond issuances reached USD 948 billion, a 19% decrease compared to 2021. Across all labels, social bonds saw the largest decline in volume (-39%) in 2022 compared to 2021. Source: World Bank Data 5

6. Who can issue GSS Bonds World Bank Government RBI and Nationalised Banks Mutual Fund organisations Financial Institutions Other Corporations who have GSS Projects 6

7. Green Bond Categories Project Description Renewable Energy Wind, Solar etc Related infrastructure Energy Efficiency Building efficiency including environmental systems Smart grids Pollution prevention and control Waste Water management Reduction in carbon emission Sustainable management 0f natural resources Sustainable agriculture Reduction in carbon emission Bio-Diversity Conservation Protection of coastal, marine & and watershed management Nature reserve management Clean transportation Public transportation and related infrastructure Alternative fuel vehicles Sustainable water management Infrastructure for clean and / or drinking water Energy recovery from waste water Responsible Waste Management Reduce, reuse, recycle, recover, and residual management 7 Eligible for Green Projects and Green funding The types of green bonds are constantly evolving as the market matures

8. GSS Bond Principles- a voluntary guideline 8 ICMA has issued guidelines for GSS Bond and the same may be followed for uniformity Main Element of a Green Bond Primary duties of the issuer Use of Proceeds Bond proceeds should be designated for eligible Green Projects with clear descriptions in the legal document upfront. These projects must provide verifiable and quantifiable environmental benefits. Process for Project Evaluation and Selection Issuers should clearly communicate the objectives, fitness determination method, eligibility criteria, and associated risks of Green projects. Management of Proceeds The money earned from the Green Bond should be put into a separate account and monitored by the issuer to make sure it's being used properly. The amount in this account should be adjusted regularly to match the funds allocated to eligible Green Projects. An auditor or third party should verify and certify that the tracking method and allocation of Green Bond funds to green projects is accurate. Reporting Bond Proceeds usage to be reviewed and reported annually. Annual Report to include project list and details of allocation, amount, and expected impact.

9. Green Bonds in India India's Sustainable Finance Market   India is the sixth largest issuer of green, social, sustainable, sustainability-linked, and transition bonds (GSS+) in the Asia Pacific Region, according to unpublished data from Climate Bonds. By the end of 2022, Climate Bonds had recorded GSS+ bonds from 43 sovereigns with combined volumes of USD323.7bn. Despite its vast potential, India has raised negligible amounts through green bond issuance, which has seen remarkable growth globally. Source: Statista 9

10. 10 Green Bond Challenges and Opportunities Investors, issuers, and regulators lack understanding of green bonds, causing compliance issues and reduced demand. Clear regulations aligned with global best practices, such as the Green Bond Principles and Climate Bonds Initiative, are crucial for investor confidence in the green bond market. Reporting of “use of proceeds” and Reviews of the projects by qualified persons Education and awareness campaigns are necessary to explain the benefits and workings of green bonds. The Securities and Exchange Board of India (SEBI) guidelines recently refined and aligned with international standards, to bolster investor confidence. The new SEBI guidelines ensure robust oversight, monitoring, and reporting mechanisms to maintain the integrity of the green bond market and to foster investor trust.

11. 11 Green Bond Challenges and Opportunities (Continued) India needs more qualified green projects for its green bond issuance. Many sustainable projects face finance and bankability challenges, making it difficult for investors to evaluate their environmental effects and financial sustainability Green bond issuances in India face pricing challenges due to increased costs from external evaluations, certifications, and reporting.. Many Indian issuers opt to issue green bonds in the international market for tighter pricing and the benefit of " Greenium ". Sustained awareness programs with the objective of Encouraging more green initiatives and offering technical and financial support can increase the supply of qualified projects. To make green bonds more profitable for issuers, various financing methods like green bond insurance, concessional funding, tax benefits, or carbon credits can be used.

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14. 14 References: https://www.icmagroup.org/ https://www.climatebonds.net/2023/03/india-debut-sovereign-green-bond-market-first-deal-landed-greenium Framework for Sovereign Green Bonds- Govt of India thru DEA website reference 2891146/2022/Finance Unit https://greencleanguide.com/everything-you-need-to-know-about-green-bonds-in-india/ Data from World Bank