Dr. Narayani Ramachandran, Associate Professor - Finance, NMIMS University, Bangalore campus

Dr. Narayani Ramachandran is an Associate Professor- Finance and Chairperson- MBA program at NMIMS University, Bangalore campus. Dr. Narayani has an experience of two decades of academic, research and consulting in the areas of financial markets, products and services. Dr. Narayani is an affiliate member of the council for financial planners- Karnataka and has a keen interest in promoting financial education across age groups & domains. She also offers consultancy in the area of fundraising for start-ups and their valuation matters. Dr. Narayani was the recipient of Awarded Teaching Excellence Award at NMIMS, Bangalore for the academic years 2015-2016 and 2017-18 & Special mention for Teaching Excellence in 2018-19. Dr.Narayani’s mission in life is to skill people to improve their financial quotient and in turn to sharpen their financial perspectives, which aid them in taking better personal as well as professional financial decision-making.


The notion of ethical use of money can be traced back to Vedas, dated between 1700 and 1100BC. The mention of usury is then present in the religious texts of Buddhism, Judaism, Christianity and Islam. Some argue that the attitude towards the use of money as influenced by religious beliefs and ethics can be interpreted as the early form of sustainable finance.

Sustainable finance can be broadly defined as the stocks and flows of financial resources and assets (across banking, investment and insurance industries) which is aligned with a large range of environmental, social and economic objectives and more generally with the delivery of the Sustainable Development Goals(SDGs) as developed in the context of the United Nation Development Program (UNDP). In this respect, green finance should be considered as a fundamental component of sustainable finance.

There is no single agreed-upon definition that can clearly explain what green finance is. There is not only the term “green finance;” other similar terms like environmental finance, carbon finance, and climate finance also appear these days as the importance of green finance increases. Green finance encompasses Financial Support for Green Companies, Development of Green Technology, Development of Green Financial Products, and Efficient Operation of Carbon Markets.

In sustainable finance, the framework put in place for green bonds is by far the most advanced one. This framework, developed within the financial industry, today benefits from a large acceptance of the Green Bond Principles (GBP), issued by the International Capital Market Association (ICMA) in 2014 and then updated in 2018. The GBP are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the green bond market by clarifying the approach to be followed for the issuance of a green bond (ICMA 2018).

When Indian investors and market is gearing up to welcome green bonds in a massive way, there are few issues worth the notice.

The green bond issued by the Dutch finance ministry in May 2019, with the maturity in the year 2040, aroused the investor’s interest as it was placed in the market with a spread of 18 basis points above regular Dutch Government bonds with similar maturity. It was a first green bond at all of a triple A –rated European Government. The proceeds were promised to finance sustainable projects in the years ahead. This means that investors generate an additional premium for investing in a nearly risk-free sustainable asset. Denmark and Germany announced to be the next European governmental issuers of green bonds. In both cases, market participants also expect to observe yields slightly above regular issues.

While the green bond market has grown significantly during the last couple of years, it still represents a niche market and each analysis has to address issues like low yield, illiquidity and price quality.

To correctly price a green bond and to benchmark the performance of bonds is overall critical because each bond is very specific with respect to credit rating, coupon, maturity, covenants, and further conditions.

The risk of green washing is impacting the green finance market. Green washing is a phenomenon, when a business uses deceptive ways to claim green when they are not actually green. Green washing happened to be wide spread in the consumer goods industry.

As a matter of fact, the lack of universal definitions and standards amplifies such a risk as it opens to several possible interpretations of what green means in the financial markets. For this reason, as the market for sustainability-related certifications and reviews continues to develop, regulation on communication regarding the environmental impact of financial securities, products and services marketed as green should be also expected to become stricter.

As of today, several definitions of “green” are in use in the financial market. These definitions primarily try to segregate green securities from their non-green equivalents. They are mainly backed by criteria of possible use of the proceeds coming from the specifi financing instrument and other operational standards or the eligible activities carried out by the companies financed. Nevertheless, high heterogeneity can be observed as concerns approaches, scopes and reliability of the organizations issuing these definitions. In the longer term, this lack of clarity on what is green and what is not green may harm the credibility of the market. In this respect, an effort should be encouraged at an international level to produce reliable and widely accepted references.

Content Disclaimer

Related Articles