How 'Green' Bonds Help Build Clean Real Estate

The National Highways Authority of India (NHAI) is planning to float green masala bonds to raise $750 million. The funds raise through these green masala bonds, to be listed soon on the London Stock Exchange (LSE), are to be used for greening of highways and other such projects in India. "We plan to float what we call green masala bonds in a month and aim to raise $500 million to $750 million in the first tranche," media reports quoted NHAI Chairman Raghav Chandra as saying on July 21.

"We plan to float what we call green masala bonds in a month and aim to raise $500 million to $750 million in the first tranche," media reports quoted NHAI Chairman Raghav Chandra as saying on July 21.

PropGuide explains green bonds and how they can impact real estate in India.

What are green bonds?

A debt instrument, bonds are a means of raising finance from investors. It is profitable for both parties, as the entity issuing bonds gets capital to finance its project requirements, and investors get interest payment on the capital. Among the various kinds of bonds, environment or green bonds are those specifically issued to encourage environmentally sustainable practices and projects. To encourage such constructions, many global bodies are providing finance at lower interest rates. Apart from the other benefits, investing in green bonds is covered under corporate-social responsibility (CSR) guidelines and help reap tax benefits, too.

The condition

To raise funds through green bonds, your project has to comply with some specific norms. For example, to be a green building, your project's low carbon footprint has to be lower. This means that from conceptualisation to completion and maintenance, your building has to be environment-friendly. Such buildings use as much natural light and ventilation as possible to lower the usage of electricity, water, lighting, etc.

The rating agencies

Here are some of the rating agencies that issue 'green certificates' to developers in the country:

Indian Green Building Council (IGBC): This is part of the Confederation of Indian Industry (CII) and was formed in the year 2001.

Energy Conservation Building Code: Launched by The Indian Bureau of Energy Efficiency (BEE), it is a code set for energy efficiency standards with respect to design and construction of any building. Buildings that are compliant to its norms are called ECBC-compliant buildings.

EDGE Program in India: Real estate developers' body, the Confederation of Real Estate Developers' Associations of India (Credai) and IFC have collaborated to encourage green buildings in the country through the EDGE certification. A memorandum of understanding in this respect was signed in 2014.

Green Buildings Rating System of India: Popularly known as GRIHA, it is a standard for rating green buildings in the country. It is a wing of The Energy and Resources Institute (Teri).

The challenges

The presence of several rating and certification agencies, each with its own norms and guidelines, sometimes create confusion among developers. Many guidelines prevalent nationally are found lacking on several parameters when compared with global ones. By laying down specific guidelines, the government may be able to clear the air on green buildings and encourage more and more developers to join the green bandwagon.

Also read: India's First Masala Bond Set For A Take-Off

With inputs from Anshul Agarwal