Greenium and Alpha in India’s Debt Markets: Measuring Returns and Climate Impact

Abstract

This study explores whether green bonds in India provide both environmental impact and competitive financial returns, thereby making a compelling case for sustainable investing in emerging markets. Using a sample of 22 green bonds listed with the Securities and Exchange Board of India (SEBI) between 2017 and 2024, we assess two key dimensions: financial performance, and carbon impact per ₹1 Lakh invested.

To evaluate financial viability, we estimate alpha using the Capital Asset Pricing Model (CAPM) and compare it against a matched set of conventional bonds. In parallel, we analyze the presence of a greenium - a yield discount attributed to environmental labeling across the sample. The paper further quantifies CO₂ emissions avoided and conducts a regression analysis to identify the primary drivers of greenium within the Indian market.

Our findings indicate that while a modest greenium exists, green bonds demonstrate comparable alpha to conventional bonds, confirming their financial competitiveness. Furthermore, measurable carbon savings reinforce their environmental relevance. The paper concludes with a critical discussion on greenwashing risks, market transparency, and the credibility of India’s green bond ecosystem, offering targeted policy recommendations to enhance investor confidence and market maturity.