Founded in 2017, Vivriti Capital raised a $25 million debt facility from the Asian Development Bank (ADB) for a climate bond in September 2024. According to the company, this is its first green bond and also ADB’s first bond with an NBFC. The non-banking financial company (NBFC) provides debt financing to mid-market enterprises and underserved sectors in India. The funds will support renewable energy and electric vehicle (EV) projects, helping India reduce its carbon emissions. “It’s a bond with a tenure of four years, focusing on green sectors, namely solar, EV (clean transportation), and waste management. To provide more detail, almost 50% of the funds will go towards clean transportation, which includes not just batteries and vehicles, but also dedicated infrastructure like charging stations for both private and public transport”, said Smitha Jain Arora, Head- Sustainability and Impact, Vivriti Capital.
In an interview with ResponsibleUs, Arora spoke about how these green bonds are distributed to different sectors in detail.
Interview Excerpts:
What is your climate or finance project, and can you explain the $25 million investment raised from the Asian Development Bank?
It is also the first green bond to be certified by the Climate Bond Initiative for a private sector entity, among other firsts. The $25 million bond matures in four years and has the goal of targeting the top three green sectors: solar power, electric vehicles for clean transportation, and waste management. “We will channel nearly 50% of this amount to clean transportation; not just batteries and vehicles, but dedicated infrastructure like charging stations which private and public transport can use.
Of this investment, roughly 30% will be financed towards renewable energy projects including onshore solar and wind energy generation, storage infrastructure, cogeneration facilities, and dedicated facilities for the production, manufacturing, and distribution of important components. The idea is not just to install the energy units but to build a full ecosystem.
The focus will hence be on waste management, more so on collection, sorting, and recycling. Its scope has been kept intentionally narrow to ensure that the strict requirements of certified green bond issuance are adhered to, covering thorough pre-issuance and post-issuance certification. A high threshold for due diligence, measurement, and reporting is critical to the mitigation of the risk of greenwashing.
While everyone talks about sustainability, the environment, and waste management, there’s little discussion about financial aspects like green bonds and green capital. Could you elaborate more on this?
Banks typically prefer bigger projects with longer tenures. What becomes challenging for us is that we are a smaller player in the larger financial industry.As an NBFC, while we are securing the funds for four years, with a cap on the number of MSMEs and sectors we can include in the bond, our focus is on supporting the entire ecosystem rather than just one part of it and creating impact. For instance, it’s not only about having a solar or wind installation but also about bolstering the logistics, supply chain, and other associated ecosystem players.To give an example, one of our borrowers in Chennai is a dedicated logistics partner for transporting wind turbines. This process involves extensive paperwork and strict adherence to ESG norms, including emission certifications at both the start and end of the journey. Regulators ensure there is no greenwashing or dilution of these standards.
India has become a frontrunner in addressing these challenges. While a layperson might not fully grasp the depth, the renewable energy sector in India has grown tremendously. While we rely on importing components from China, we have started manufacturing them domestically as well.
How did you secure such a significant investment? What criteria or efforts helped you convince the bank?
There are no shortcuts when working with DFIs (development finance institutions or development finance companies). It requires significant effort, especially for a vertical like mine, which focuses on sustainability and impact. Typically, my CEO pitches our mission, vision, and goals to the investor, and then my team steps in to explain our sustainability and ESG frameworks.
Investors want to understand our experience in this sector, the percentage of our portfolio that is already green, and our credit assessment capabilities. Over the last three years, we’ve developed a robust ESG framework, and our credit underwriting team conducts rigorous due diligence.
For us, ESG is not just a support function; it’s central to our operations. Over the past two years, we have raised around 250 crores through funds and debt, thanks to our strong ESG roadmap.
We couldn’t rely on the existing models, so we went down to the grassroots level and built our own. This model is no longer just an Excel sheet; we have translated it into a cloud application. I’m both proud and humbled to say that we are the only NBFC with this solution.
I was recently at an IFC event where some of the big banks discussed their ESG roadmaps. Despite being pioneers in this space, even they do not have a model that can provide borrowers with a score based on their inputs. We built this in-house, ensuring we were confident about how we wanted to move forward with the reassessment.
Today, we work closely with over six DFIs, including IFC, ADB, and BII. We collaborate with them on both the fund side and the NBFC side. What they want to see is how robust our frameworks are and whether they align with global standards.
This gives us an edge when we speak to investors. We can confidently tell them that we already have this in place and are actively doing the assessments. We not only have the capabilities but also the capacity to build in these newer areas, which often surprises them.
So, does that mean Vivity Capital provides ESG consulting along with loan?
Not exactly consulting, but we assess where borrowers stand on ESG risks. Both our credit and ESG teams work together to evaluate clients. If a borrower passes the ESG committee’s review, the proposal moves to the credit committee for approval.
We don’t do this for the entire portfolio but focus on sectors like renewable energy and waste management, where ESG is a critical decision-making factor. If a project doesn’t meet ESG criteria, it won’t qualify as green, and we won’t proceed.
We have developed a comprehensive ESG framework, including policies, committees, and a dedicated team. Initially, we used an Excel-based model for assessments, which evolved over 12 iterations to suit mid-market borrowers. This framework helps us educate and support borrowers, ensuring they align with ESG principles.
Our goal is to build a circle of sustainable champions, fostering collective growth in the industry while adhering to strict protocols to make a real impact.
What challenges do you face when borrowers lack the necessary capacity or infrastructure to demonstrate their green impact and report on it effectively?
The Climate Bond Initiative (CBI) standards are very strict and challenging when it comes to identifying whether something is truly green or just greenwashing. It becomes difficult for me when my borrower lacks the right capacity or infrastructure to demonstrate how their operations are moving forward, how they are measuring their impact, and how they are reporting it. Data challenges are very real. While they may be working on these issues, they often lack the capacity or capability to accurately calculate the emissions they have reduced.
Additionally, all of this needs to be certified by a third-party organisation. Not only these certification agencies in India are limited but they are also quite expensive. While green financing doesn’t come cheap, it requires extensive certification and third-party verification. We’ve chosen projects with clean and short green elements to begin with, projects that don’t require third-party certification.
But in the waste/energy sector, every loan we provide will require third-party certification, approved by the CBI. That’s another challenge. We are starting with this project to see how it develops. It’s not that we are not willing to challenge ourselves to figure out how we can facilitate and procure green certification. We are already lending to these companies.