Annual review 2017

The green bonds boom

As the market for green bonds continues to expand who will benefit from the growing opportunities?


Green futures

India’s first certified and internationally listed green bond was certainly a ground-breaking transaction for both Axis Bank and Indian markets. Axis Bank announced the landmark USD500m transaction in May 2016.

Yousuf Syed

Head of International Debt Capital Markets, Axis Bank Limited


“Though being a ground-breaking transaction, the issuance was not a one-off for Axis Bank, one of India’s largest private sector banks”, says Yousuf Syed, Head of International Debt Capital Markets.

“Instead, it presents the continued evolution of an approach to finance, invest and conduct day-to-day operations that are both socially and environmentally responsible. As a bank we are one of the earliest to finance green assets. Over time our views about the environment and society have evolved and now laid out explicit plans to meet some key objectives,” he says.

The bank has a clear stance on the assets it will finance – determined to boost green investment and refusing to fund projects that are detrimental to the environment. It has an active policy to support the communities it works in to reduce its own environmental footprint. These ongoing efforts within the bank converged with the development of the green bonds market.

The transaction also conveniently coincided with the unveiling of ambitious new renewable energy targets by the Indian Government to raise capacity from just over 30GW (gigawatts) today to 175GW by 2022 and to target 40% of all power produced by renewable sources by 2030.

Although Prime Minister Narendra Modi has called for private sector banks to play a growing role in funding this rapid expansion of the renewables sector, the timing of the Axis green bond issuance is not a direct response to any government pressure or incentive.

However, it has had an impact on the wider market, insists Yousuf Syed. With the Axis issuance gaining a dual listing both on the green segment of the London Stock Exchange and on the Singapore exchange, the confidence of other Indian issuers to tap the international market for green finance has been boosted.

“I think our issuance has helped pave the way for other Indian issuers, including smaller ones, to issue green bonds in the international market. Since our transaction, we have seen a number of other issuances, especially from corporates.”



Reaching green investorsRead more

Axis Bank has been a regular issuer of conventional bonds and the USD500m green bonds form just a part of the USD5bn medium-term note programme.

However, stepping into the green bond market has allowed the bank to reach a wider investor base by attracting dedicated green investors. Many of these were first time investors in any green bond issuance from India.

In the green bond issued by Axis Bank, 22% of the investors who subscribed were “green only” investors, which at the time was the highest proportion of dedicated green investors to participate in a green bond issuance from India, a record that Yousuf believes still holds.

“I think we have not only diversified our own investor base but also attracted some of the them to the Indian market, helping subsequent green bond issuances here,” he says.

Extensive dialogueRead more

Structuring the transaction in order to make it attractive to green investors meant the bank had to work hard to understand their expectations. Helped by lead adviser Credit Agricole, the Axis team engaged in an extensive programme of dialogues with green investors. The activity was fruitful in understanding that investors wanted to prioritise three areas of investment – renewables, low carbon transport and low carbon buildings. The green bond framework for the transactions is independently assured by KPMG to be in compliance with strict environmental guidelines from the Climate Bonds Initiative (CBI).

Although hydro-electricity is a renewable energy source and is permitted under Green Bond Principles, some projects have proved to be contentious in the past and the CBI is yet to develop certification standards for them. Considering this, Axis Bank decided to leave hydro projects off its list of acceptable projects for financing until CBI standards are published.

Similarly, Axis Bank specified that verification and reporting standards will be much more rigorous. As proceeds are deployed, each project will be independently reviewed and verified by KPMG to ensure it is delivering promised benefits to the environment.

Details of some of the projects will be published in the annual disclosure made by Axis Bank to its green bond investors and some of those details will also be included in the bank’s annual social and environmental responsibility report.

Clear benefitsRead more

Yousuf believes that completing the first certified green bond issue has delivered significant benefits to the bank.

It has increased awareness and knowledge within the bank about the green bond market and, thanks to regular interaction with investors, has given the bank’s teams a much deeper understanding of their demands and expectations.

It will, he thinks, make the bank much better at reporting its wider environmental achievements and goals, bring a new focus to financing green projects allowing it to better showcase its achievements in this area, and build a clear reputation as an environmentally responsible organisation.

“Issuing the green bond has helped cement our reputation and has sent a strong signal that, as an organisation, we will not finance or invest in projects that damage our environment, but want instead to encourage investment in green assets,” says Yousuf.

“This is going to be business as usual for us in the future. It was not just a one-off issuance, but part of how we operate day-to-day. As our broad approach continues to evolve, we will certainly look for the right opportunity to do further green bond issuances in future.”

“Issuing the green bond has helped cement our reputation and has sent a strong signal that, as an organisation, we will not finance or invest in projects that damage our environment, but want instead to encourage investment in green assets.”