Creating a sustainable housing system in India using green bonds

By Priya Chetty on September 26, 2016

India’s real estate sector has depicted a remarkable growth trajectory over the past two decades. This is due to the growing demand for housing and increased disposable income. Investment has also grown proportionately during this period from domestic and foreign investors in order to capitalize on this opportunity. Increased investment has led to increased construction activities in India. DMG Events (2015) reports that the construction industry has shown a CAGR (Compund Annual Growth Rate) of 24.1% from 2011 to 2015. Similarly its share in India’s GDP rising from USD 11.95 billion in 2013 to USD 34.35 billion in 2016. However the growth in real estate sector has increased many problems related to sustainability. 

Impact of real estate sector on sustainability

Contribution of construction industry in India’s GDP
Contribution of construction industry in India’s GDP (2013-2016. Source: Central Statistical Organisation).

The growth of the real estate sector not only shows the extent of infrastructure development in India but also raising a great concern on the rate of development and its causes on the environment. With each additional building being put up by a developer today the atmosphere takes a small dent. When combined with other unsustainable economic activities it digs a grave. Some of the biggest problems exhibited by the real estate industry includes:

  • leading to an unsustainable ecosystem (soil and air contamination),
  • hazardous waste disposal,
  • dust and noise pollution.

These factors have become one of the biggest harbingers of India’s pollution menace (Dash, 2016). Such a dangerous trend will lead to irreparable ecological damage if it is not kept under check by the regulators.

A plethora of measures have been put in place by the apex agencies to this effect. Measures such as planting trees in the construction area, waste disposal and shielding the atmosphere by covering the construction site with tarpaulin has been introduced (Adak 2015). However, acknowledging the fact that the industry needs to be proactive rather than reactive. Some business entities in the country have been actively promoting green bonds as a financial instrument for funding eco-friendly or “green” projects.

Introduction of green bonds in India

There is no universally accepted definition of a green bond. It typically refers to a bond issued for funding a “green” project aimed at reducing carbon emissions and creating a more sustainable environment through renewable energy (CCEW, 2016). It is a relatively new concept but is steadily gaining momentum in India owing to not just environmental but also financial benefits attached to it. The investors of green bonds are shielded from negative returns as repayment is mandated to the issuer rather than success/failure of the project.

In India till date, only a handful of establishments have issued green bonds. Yes Bank was the first and a number of other banks have followed suit such as Axis Bank, Punjab National Bank (PNB) Housing Finance (The Economic Times 2016). Considering that India has pledged to generate 100 Gigawatt of solar energy and 60 Gigawatt (GW) of wind energy by 2022 (IBEF, 2016). The time is ripe for pushing for better tax subsidies and incentives for attracting investment towards green projects and discourage the usage of conventional non-renewable sources of energy. The industry could do with a more refined framework for regulation of green bonds in order to facilitate a popularity surge of the concept.

Importance of green bonds in the real estate sector

Green bonds was primarily offered by the World Bank and many national governments and municipalities. Private banking institutions too have started on this trajectory to fund “green” buildings. Funds raised through this route are used for following purpose:

  • to renovate old buildings to make them more sustainable,
  • construct new eco-friendly buildings,
  • development of renewable energy on-site through installation of solar panels,
  • water harvestation technology,
  • sustainable waste management system,
  • installation of technology that reduces dust and air pollution during construction.
Issue of Green Bond globally ( amount on USD billion.
Issue of Green Bond globally ( amount on USD billion. Source: NDRC International 2016).

The concept has already catapulted to USD 46 billion in 2015 from a meager USD 3.1 billion in 2012 worldwide (Mahapatra 2016). The biggest issuers among this figure were Europe with issuance of USD 18 billion, USA with USD 10 billion, India at USD 1.1 billion and China at USD 1 billion. The property industry is one of the most unsustainable industries contributing to a third of global carbon emissions. Similarly it also consumes a third of the world’s energy and resources, swallowing up to 25% of the total water (Anzinger n.d.).

Nexus of growth and sustainability in the real estate sector in India

The industry’s premier institutions are not encouraged enough to take up eco-friendly projects for financial reasons and sustainability gains. In such cases, many countries will find themselves floundering to achieve the goals set in the Paris Agreement signed in December 2015. India accounts for 4.5% of the total global greenhouse emissions. Given the government’s pledge to diminish coupled with imminent growth in real estate, India needs more incentive in the form of green bonds. However, the lack of standardization in the market is a big barrier to achieve this goal.

The Indian government has taken several measures to revive the real estate sector. The Real Estate  Regulation and Development bill (RERA) is coming into effect from this year. Subsequently, Real Estate Appellate Tribunals in every state will be established by the next year. Thus, keeping in mind both the growth and sustanibility, the government should also incentivize projects which achieve “green” certification. Financial gains are also being seen by issuers in the form of low interest rates. Apart from this, reputation benefits attached to “green” projects will help foster better investor relations. This will help to build a favourable reputation in the market. Not only will the sector learn to be self-reliant in terms of energy generation but it will also pioneer a revolutionary change in India’s climate change accord systemically.

A step towards green revolution

The real estate sector has already taken one of its first steps towards eco-friendliness with Punjab National Bank (PNB) Housing Finance’s raising USD 75 million from the International Finance Corporation (IFC) (Business Standard, 2016). The bank will use this fund to develop residential projects based on universally accepted green building standards certified by the IFC. Many more housing finance companies as well as commercial banks are expected to follow suit and is soon expected to become a norm in the industry. Green bonds are an ideal option for investors looking for safe investment with long term gains and a sense of contribution towards the betterment of the environment for future generations of the country. It is another brick in the wall of the problem of un-sustainability but with deep and lasting long-term positive effects.


Priya is the co-founder and Managing Partner of Project Guru, a research and analytics firm based in Gurgaon. She is responsible for the human resource planning and operations functions. Her expertise in analytics has been used in a number of service-based industries like education and financial services.

Her foundational educational is from St. Xaviers High School (Mumbai). She also holds MBA degree in Marketing and Finance from the Indian Institute of Planning and Management, Delhi (2008).

Some of the notable projects she has worked on include:

  • Using systems thinking to improve sustainability in operations: A study carried out in Malaysia in partnership with Universiti Kuala Lumpur.
  • Assessing customer satisfaction with in-house doctors of Jiva Ayurveda (a project executed for the company)
  • Predicting the potential impact of green hydrogen microgirds (A project executed for the Government of South Africa)

She is a key contributor to the in-house research platform Knowledge Tank.

She currently holds over 300 citations from her contributions to the platform.

She has also been a guest speaker at various institutes such as JIMS (Delhi), BPIT (Delhi), and SVU (Tirupati).