By Harish H V
GSS+ bonds, encompassing Green, Sustainability, Sustainability-linked, Blue, and Transition bonds, represent a powerful and relatively new financial tool to raise debt for companies committed to positive environmental and social impact. These “use of proceeds” bonds/debt help companies to directly fund projects that deliver environmental and/or social benefits, making them accessible to any company, regardless of the nature of their business which may not necessarily be “Green”. Even carbon-heavy industries can leverage GSS+ bonds to finance or refinance qualifying projects.
The investor pool for GSS+ bonds, is substantial and growing. With over $5 trillion in total issuance, this market demonstrates a strong appetite for investments that generate both financial returns and positive societal effects. Investors are increasingly seeking opportunities to align their capital with their values, driving further expansion of this market.
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GSS+ bonds function similarly to traditional financial instruments, offering a range of tenures, security types, and coupon rates, but with the added dimension of sustainability. Several key types exist, each targeting specific areas of impact. Green bonds finance climate change mitigation, resource conservation, and biodiversity efforts. Social bonds support initiatives like affordable infrastructure, education, housing, and socioeconomic empowerment. Sustainability bonds combine both green and social projects within a single instrument. Blue bonds focus on water and waste management, and pollution control. Finally, transition bonds aid in reducing greenhouse gas emissions and facilitating the shift to a greener economy.
Adherence to globally recognized frameworks, such as the ICMA guidelines, is essential for these instruments. It’s also worth noting that a single bond can incorporate multiple benefits, for example, a Green Bond might also include a social component, enhancing its market appeal.
The issuance process for GSS+ bonds mirrors that of traditional bonds, with the addition of specific steps related to demonstrating the environmental or social impact of the funded projects. Investors often prefer listed bonds due to the increased liquidity they offer and reduced provisioning requirements. The issuance process of GSS+ Bonds will need Issuers to undertake some additional steps like conducting a feasibility study to assess impact: developing a GSS+ bond framework: third party verification of the projects to confirm they are in line with the regulations and reporting on use of proceeds.
GSS+ bonds offer a range of benefits to issuers. They provide access to a growing pool of sustainability-focused investors, broadening the potential investor base. Issuing these bonds enhances a company’s reputation as a socially and environmentally responsible entity, contributing to positive branding. In a competitive market, highlighting sustainability commitments can be a significant differentiator. The high demand for GSS+ compliant investments often translates into favorable interest rates, lowering financing costs. Furthermore, these bonds enable companies to make direct contributions to global sustainability goals, including combating climate change. Finally, aligning with such initiatives can boost employee morale and satisfaction, particularly among younger generations.
Globally, the GSS+ debt market is robust. In 2024, the volume of GSS+ debt aligned with Climate Bonds Methodologies reached USD 1.1 trillion, with a cumulative issuance volume of USD 5.7 trillion since these bonds were first launched. Green bonds constituted 67% of the debt issued in 2024, with social and other types making up the remainder.
In India, companies have raised over USD 27 billion in GSS+ bonds to date, representing approximately 0.5% of the global market. While most Indian issuances have been concentrated in the banking, government, and utility sectors, it’s important to dispel the myth that these bonds are only suitable for large-scale projects. Bond sizes in India range from as low as USD 6 million, making them accessible to smaller companies as well. Notable examples include the Indian government’s Sovereign Green Bond, exceeding USD 5.5 billion, and Shriram Transport’s multiple tranches of social bonds, totalling over USD 1.6 billion, which address financial inclusion, employment generation, and socioeconomic development.
In conclusion, GSS+ bonds represent a significant opportunity for companies seeking to raise capital while simultaneously contributing to a more sustainable future. This relatively new avenue for debt financing deserves serious consideration from both companies and investment bankers.
The author is Managing Director at ECube Investment Advisors an ESG focussed platform.
The market statistics and growth rates are cited from Climatebonds.net. and The definitions and framework details are sourced from the ICMA guidelines.
