August 6, 2025

India's Environmental, Social, and Governance (ESG) bond market is gaining traction as a growing number of global investors, corporate issuers, and regulators focus on sustainability. Traditionally viewed as a niche market, ESG and green bonds are garnering increasing interest due to stronger policies and rising demand for impact-linked investments.

Vineet Agrawal, Co-Founder of Jiraaf, asserts that the momentum behind ESG bonds in India is clear. Rising interest among global investors looking for sustainable assets, coupled with a favorable regulatory environment, is driving this growth. Regulations such as SEBI’s Business Responsibility and Sustainability Reporting (BRSR) Core framework and the RBI’s green finance guidelines are encouraging Indian companies to integrate ESG principles into their financing strategies.

Sectors like renewable energy, clean mobility, and infrastructure finance are leading the charge in ESG bond issuance. Recently, Larsen & Toubro (L&T), one of India’s largest conglomerates, issued its first Rs 500 crore ESG bond, marking a significant step as major corporates enter sustainability-linked financing. As ESG considerations become more mainstream, Agrawal anticipates that more Indian corporations will adopt similar strategies.

While global markets have widely adopted ESG investing, especially in fixed income, India remains in the early stages of this trend. Gautam Kaul, Senior Fund Manager – Fixed Income at Bandhan AMC, notes that although the equity side of ESG investing is gaining traction, fixed income remains underdeveloped in India. However, positive signs are emerging as both private corporations and the Indian government start issuing ESG and green bonds, with the government’s Sovereign Green Bonds (SGrBs) raising close to Rs 57,697 crore through FY25.

Kaul also mentions the issue of pricing for ESG instruments. There is a selective premium being paid for ESG bonds, with a differential of about 5 basis points between green and regular government bonds, which he believes may widen as the market matures.

The green bond market in India has been on an upward trajectory since SEBI introduced formal guidelines in 2017, paving the way for improved participation and accountability in this space. Nikhil Aggarwal, Founder and Group CEO of Grip, points out that globally, the green bond market not only reached new heights in 2024 but also outperformed conventional bonds by nearly 2%. This momentum has intensified in India, especially after the government began issuing green bonds, leading many institutional investors—such as mutual funds and banks—to align their portfolios with ESG standards, driven by both regulations and a growing emphasis on sustainable investing.

Aggarwal also notes that SEBI's stringent disclosure and verification requirements enhance credibility and provide assurance to investors that their investments are producing real environmental and social benefits.

Looking toward the future, several sectors appear particularly promising for leveraging the ESG bond market:

1. Infrastructure & Urban Development: Initiatives like metro rail, highways, smart cities, and clean water projects are well-suited for sustainability-linked financing.
2. Renewable Energy & Clean Tech: Companies involved in solar, wind, hydro, and electric vehicle mobility are pivotal in supporting India's net-zero targets and are key issuers of green bonds.
3. Social Infrastructure: Projects in affordable housing, healthcare, sanitation, and education demonstrate clear social impact, making them ideal for social bonds.
4. BFSI Sector: Banks and Non-Banking Financial Companies (NBFCs) with ESG frameworks can issue their own bonds or facilitate financing for green and social initiatives.
5. Large Listed Corporates: The top 1,000 listed companies complying with SEBI's BRSR norms are positioned to meet ESG requirements effectively and raise funds through sustainability bonds.

In conclusion, while India's ESG bond market is still developing, the groundwork is robust. Regulatory frameworks are evolving, investor interest—particularly from international sources—is growing, and corporate issuers are increasingly viewing ESG bonds as vital funding tools. As climate commitments become more critical and global capital increasingly prioritizes sustainability, India’s ESG bond market is not just set to grow but is also likely to reshape the larger landscape of fixed income investing.

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Tags: Esg bonds, Green bonds, Sustainability, Investing, India,