Understanding the preference of individual retail investors on green bond in India: An empirical study

Abstract

The biggest challenge facing countries, including India, is creating and managing an LCR (low carbon resilient) economy, which balances the need for high growth rates and is environmentally sustainable. The green bond market provides investors the means to help change the economy into an LCR economy. The study was undertaken to understand the key drivers and the factors influencing the individual retail investor’s decision to invest in green bonds. A survey instrument was designed and administered through the snowball sampling technique to 125 Indian respondents of various age groups who were eligible to invest in the Indian bond market. SPSS software was used to conduct a descriptive analysis followed by regression and conjoint analyses. The study results suggest that the Environmental, Social, and Governance (ESG) rating and credit rating of the green bond issuers are the key factors that influence an individual’s investment decision. The findings also highlight that incentives such as tax exemptions and awareness of green bonds also affect an investor’s decision. This research stands out as one of the first attempts to understand the Indian retail investors’ perception of a green bond.

The Determinants of Green Bond Issuance in the European Union

“…That will allow the issuer to access more capital. Moreover, the ESG score will increase the demand for green bonds considering the increasing confidence of investors, as shown by Prajapati et al (2021). ESG rating influences the investment decision and can be used as an opportunity to access the financial market.…”

“…The investor motivation theories reveal that the decision to invest in a green bond is related to social, financial, and institutional factors (Prajapati et al 2021). Also, the sustainable theory presents the maximization of the social value, which considers all stakeholders' needs as a core objective (Tolliver et al 2021).…”

“…Diouf and Hebb (2016) find that socially responsible investing is associated with the ESG issuer rating; the ESG rating influences the decision of the individual social investor. In addition, studying green bonds in India, Prajapati et al (2021) reveal that ESG rating is an important determinant in investment decisions.…”

“…It is well known that credit ratings have a significant influence on the bond market. The issuer's credit rating impacts the investment decision in green bonds, and the issuer can attract more investors if they have good ratings (Prajapati et al 2021). This fact leads by default to a large amount of green bond issues; Chiesa and Barua (2019) reveal the positive influence of rating on the issue amount.…”

Do environmental protection investments contribute to environmentally-oriented SDGS?

“…Prajapati et al, 2021) Filho et al (2022). showed that the achievement of SDGs should be considered not only from the point of view of expenditure, but also from an investment approach.…”