L&T's ESG bond debut may open India's sustainable debt market—if investors stay interested
Experts believe the ₹750 million sustainability-linked bond (SLB), anchored by HSBC and offering a 6.35% coupon (competitive by market standards) suggests that investors are willing to back credible ESG-labelled issuances.
But whether this debut sparks a broader trend or remains an isolated milestone hinges on a critical factor: investors' willingness to pay the 'greenium" – the difference between the yield or returns investors receive from a green bond versus a similar conventional bond.
'The primary factor will be investor interest and their willingness to offer a green or ESG premium to the bond issue compared to other fixed-income instruments," said Bose Varghese, senior director-ESG at Cyril Amarchand Mangaldas. 'Demand for rupee-denominated ESG bonds has been lukewarm because of the issuers' expectation of a 'green premium' and investors' lack of interest to offer that. But L&T has done it. We can expect more to follow", he said.
Global vs local demand
Globally, ESG-labelled instruments from Indian companies have seen strong demand. In 2015, Exim Bank issued a $500-million green bond, followed by Axis Bank in 2016. But in India, listed green bond issuance, including municipal bonds, stood at just ₹6,953 crore as of March 2025, according to Sebi data collated by ICRA ESG Ratings Ltd.
According to data cited by Nikhil Aggarwal, CEO of investment platform Grip Invest, green bonds outperformed conventional bonds by nearly 2% in 2024. 'The positive response from institutional investors highlights strong demand, which will be critical for future issuances," said Aggarwal.
R. Shankar Raman,president, whole-time director & chief financial officer (CFO) at L&T, told Mint the company aims to encourage responsible finance as a strategic pillar. 'We received interest from reputed investors and arrangers who were aligned with the ESG theme. The issuance also enabled us to secure beneficial pricing, reflecting the positive market sentiment toward credible sustainability-linked offerings," he said.
Data from Prime Database showed thatIndia's green bond market saw 27 issues totalling ₹8,743 crore between FY21 and FY25. The highest was in FY22, when ₹2,677 crore was raised across 10 issues. Only two issues, worth ₹700 crore, have been recorded so far in FY26.
Sebi's ESG bond framework
Sebi's 5 June circular introduced a framework covering green, social, sustainability, and sustainability-linked bonds. It mandated KPI-linked disclosures and third-party verification. 'While the framework is robust, its effectiveness will depend on the independence and reputation of the third party hired," said Varghese.
'L&T has long-standing sustainability targets, including carbon and water neutrality," said Heena Khushalani, partner, climate change and sustainability services, EY India. 'For a company with strong internal momentum on ESG and measurable long-term targets, this instrument is flexible and a logical step," she added.
Khushalani also pointed out that SLBs often include coupon rate adjustments based on the achievement of sustainability targets. 'If attractive coupon rates—like the 6.35% in L&T's case—become a trend, it'll incentivise more issuers," she said.
To be clear, among green bonds with a three-year tenure, Avaada Solaris and Clean Sustainable Energy offer a 6.75% coupon rate, according to data from Prime Database.
Still, a shortage of qualified reviewers in India could delay issuances. 'This could create bottlenecks in timely issuance and validation," Aggarwal warned.
Khushalani said, 'Sebi, NSE, or platforms like GIFT City could jointly issue guidelines or empanel competent verifiers to mitigate greenwashing risks."
The push for sustainable finance is likely to grow, especially among large firms with net-zero commitments. Experts said the Sebi framework has brought regulatory clarity and boosted investor confidence. 'As successful examples emerge, more corporates are likely to explore ESG bonds, not just as a funding tool but as a strategic instrument to align with global investor expectations," said L. Shivakumar, CEO of ICRA ESG Ratings Ltd.
Shivakumar also highlighted India's proposed draft climate finance taxonomy, aimed at bringing consistency to ESG disclosures by aligning them with global standards. 'It will provide a structured classification system that enables better comparability and tracking of outcomes," he added.
Smaller firms could struggle
Despite policy momentum, experts said smaller firms could struggle to participate in the ESG debt market owing to high compliance costs, limited visibility, and weaker secondary-market liquidity.
'So far we have seen only large, reputed Indian corporations issuing ESG-labelled bonds," said Varghese. 'For smaller companies with smaller fund requirements, issuance costs may prove significant."
Indian Renewable Energy Development Agency Limited issued a 10-year bond for ₹590 crore in 2019 and Dme Development Limited issued a 10-year bond for ₹775 crore in 2024.
An analyst at a rating agency said, 'The real test will be how effectively Sebi ensures enforcement and prevents greenwashing. Without that, the credibility of the entire market is at stake."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Deccan Herald
25 minutes ago
- Deccan Herald
When sambar met caviar
The Indian diaspora has become a lot more affluent, and they are seeking luxurious experiences, which include dining on exquisitely created and presented food from their home country.
United News of India
an hour ago
- United News of India
GST rationalisation impact on inflation depends on the effect on CPI components: Bank of Baroda Economist
Chennai, Aug 16 (UNI) The impact of the proposed rationalisation of the Goods and Services Tax (GST) on inflation would depend on the effect on the consumer price index (CPI) components, said a top economist at Bank of Baroda. He also said the impact on investment will be driven by the final effect on consumption. If consumption increases, it can spur more investment in specific products. The Indian government has announced the idea of having two major GST slabs viz., 5% (merit) and 18% (standard). 'The highest slab of 28% would be abolished and all goods and services in this bracket moved to the 18% rate. 99% of goods in the 12% rate will move to 5%. The balance 1% would go to 18%. The existing 40% rate would hold for tobacco and other sin goods. The exempted and special rates of 0.25% and 3% rate goods would remain unchanged,' Madan Sabnavis, Chief Economist said. 'The impact on inflation would depend on how various components of the CPI index are impacted by the new rates. While it has been projected as lowering the tax burden there can be a tendency for inflation to come down. But the extent will depend on the individual tax rates,' Sabnavis said. However, at the micro level, any reduction in GST as it is expected for goods like hair oil, toothbrush, pencils and others may not exactly increase consumption but will release resources of households that can be spent on other products and services. 'Impact on investment will be driven by the final effect on consumption. If consumption increases, it can spur more investment in specific products,' Sabnavis remarked. Having fewer slabs certainly makes the system simpler and leads to better compliance and removal of ambiguity. But it needs to be seen whether or not the final effect is tax neutral. If movement of goods across slabs provides a net gain on the fiscal side, then it would not change much from the consumption point of view, he said. 'On the whole it has been projected to provide support to consumption which is positive for the consumer goods segments. The ultimate impact has to be gauged from the point of view of fiscal impact given that any restructuring has to be a zero-sum game – if the consumer is to gain, there has to be some let off on the budget. This however, can get corrected once the economy grows at a faster rate in the coming years,' Sabnavis said. The GST Council is to meet in Sept-Oct and deliberate on this proposal. The compensation cess is to be phased out and it is possible that goods and services with 40% slab would take in this effect. UNI VJ GNK
Time of India
an hour ago
- Time of India
"No agreements that would go against the farmers": Shivraj Singh Chouhan on US's demand amid tariff talks
Live Events New Delhi: Union Agriculture Minister Shivraj Singh Chouhan on Friday firmly stated that India will not enter into any agreements that could harm the interests of its farmers, emphasising the paramount importance of safeguarding their rights amidst ongoing trade talks with the US, especially regarding the tariff issues in the country's agricultural and dairy a gathering of farmers in the national capital, the Union Minister noted that there were global voices that had shown concern about India's rapid progress, especially in the context of trade agreements and acknowledged that while India seeks to maintain friendly relations and create fair trade agreements with countries across the world, the spirit of these agreements must be grounded in fairness and equality."In our country, the right of the farmer is paramount, and the right of the citizen is paramount. You know, there are many people in the world who are jealous of our progress. 'What if India makes great progress? Make an agreement with them.' We do make agreements because we see the world as one family. But the spirit of agreement is based on fairness, on equality," he highlighted the agreement made with the UK, where Indian agricultural products would be allowed to enter the UK without tariffs, benefiting Indian farmers . However, he was cautious about any potential trade deals that could jeopardise Indian agriculture."We made an agreement with the UK on equal terms so that the produce of our farmers can go to England without any tax. Many agricultural products will now reach England without tax. But if someone suggests an agreement that allows another country's goods to flood our markets, we cannot compete with them," he Union Minister pointed out the disparity in the scale of farming between India and many foreign countries, stating, "Their farms are massive--10,000, 15,000, or even 20,000 hectares--while our farmers often have just one or two acres, or maybe up to five acres, which is rare. There is no comparison."He also warned that an agreement that allows foreign agricultural products to flood Indian markets could severely harm domestic farmers, driving down prices and depriving them of fair returns."If such an agreement happens, it would kill Indian farmers. Cheap foreign produce will flood the market. If we sell our produce at lower prices, farmers will not get a fair return," he a strong reaffirmation of India's stance, Chouhan echoed the words of Prime Minister Narendra Modi , asserting that no agreement would be signed at the expense of Indian farmers."But PM Modi said there will be no agreements that would go against the farmers. Their rights will be paramount," he Prime Minister Narendra Modi while addressing the nation on the 79th Independence Day, reaffirmed his support to protect farmers, saying that he is "standing tall like a wall against policies which are against farmer interest.""If any policy is against India's farmers, fishermen, cattle rearers, Modi is standing like a wall," PM Modi about standing his ground in the era of 'economic selfishness,' he added, "I say this with great experience. Kisi doosre ki lakeer chhoti karne ke liye, apni oorja hamein nahi khaphai. Hamein poori oorja ke saath hamari lakeer ko lamba karna hai. If we do that, the world will admit our strength."These remarks come during a time when India is actively involved in the discussions on the Bilateral Trade Agreement with the US, which the two sides could not conclude due to the American demand to get comprehensive access to the Indian agriculture and dairy US is pressuring India to open its agricultural market and subsequently imposing a 25 per cent additional tariff, with Washington calling it a 'penalty' for buying Russian oil. (ANI)
