Sovereign Green Bonds as a Catalyst for Strengthening India’s Climate Finance Strategy
Sovereign Green Bonds as a Catalyst for Strengthening India's Climate Finance Strategy
A Conceptual Paper
AUTHOR
Mahima M Naik
Naikmahima003@gmail.com
Department of Management Studies, Dayananda Sagar College of Engineering, Bengaluru
ABSTRACT
India faces one of the largest climate investment gaps among major economies, with cumulative financing requirements for a net-zero transition by 2070 estimated at anywhere between USD 2.5 trillion and well over USD 10 trillion depending on the scope of sectors and time horizon considered (Government of India, 2015; Climate Policy Initiative, 2024). Against this backdrop, the Government of India introduced its Sovereign Green Bond Framework in November 2022 and issued its debut Sovereign Green Bonds (SGrBs) in January 2023, positioning the instrument not merely as a fundraising tool but as a signalling and market-development mechanism within the country's broader climate finance architecture. This paper undertakes a conceptual review of the role of SGrBs in strengthening India's climate finance strategy. Drawing on Signalling Theory, Pigouvian welfare economics, Stakeholder Theory, and the asset-pricing literature on the green bond "greenium," the paper develops an integrative conceptual model linking sovereign green bond issuance to institutional credibility, investor-base diversification, and cost-of-capital effects, which together shape the pace and credibility of climate finance mobilisation. The paper reviews India's issuance experience since 2023, situates it within comparative global sovereign practice, and identifies the principal benefits and structural challenges associated with scaling the instrument. It concludes by outlining directions for future research and policy, emphasising the need for a robust national green taxonomy, deeper domestic institutional investor participation, and credible monitoring, reporting, and verification systems. This conceptual paper is intended as a theoretical foundation for a companion empirical study examining the measurable outcomes of India's sovereign green bond programme.
Keywords: Sovereign Green Bonds, Climate Finance, Greenium, India, Reserve Bank of India, Sustainable Finance, Signalling Theory, Net Zero