India's real estate sector is witnessing a gradual rise in sustainability-linked fundraising as real estate investment trusts (REITs), alternative investment funds and institutional property platforms increasingly align financing with environmental, social and governance (ESG) frameworks.

The trend has gained visibility after recent fundraising exercises by Sundaram Alternates, Brookfield India REIT, Mindspace Business Parks REIT, and Nexus Select Trust. Kailash Babar explains:

What is sustainability-linked financing in real estate?

Sustainability-linked financing refers to fundraising structures where capital-raising is tied to ESG-related parameters such as governance standards, energy efficiency, sustainability targets or green certifications. These structures can include sustainability-linked bonds, ESG-aligned credit funds and sustainability-linked loans. In India, trend initially gained traction around green-certified office buildings but is now gradually expanding into residential financing and structured real estate credit.

Why are investors increasingly backing ESG-linked realty platforms?

Institutional investors are increasingly evaluating investments not only on financial returns, but also on governance quality, compliance standards and long-term sustainability of assets. Investors believe projects and platforms with stronger governance frameworks, better regulatory compliance and sustainability-linked standards may offer lower long-term risks and more stable cash flows. Global investors and development finance institutions are also placing greater emphasis on ESG-focused investing across asset classes, including real estate.

Why is the trend rising now in India?

The shift is coinciding with tighter traditional financing conditions for developers following regulatory changes, and stricter project monitoring under RERA. Banks have become more selective in lending, especially for under-construction projects and mid-sized developers. This has created space for alternative investment funds and institutional credit platforms to raise structured capital through ESG-linked frameworks that appeal to long-term investors seeking stable yield-generating assets.

Which recent fundraising exercises Point to the trend?

Among the prominent recent transactions, Sundaram Alternates raised over ₹2,500 crore through ESG-aligned real estate credit fund, while Brookfield India REIT and Nexus Select Trust raised ₹2,000 crore and ₹700 crore, respectively through sustainability-linked bonds.

Mindspace REIT has raised ₹1,200 crore through these bonds in two tranches. More importantly, International Finance Corporation (IFC) has emerged as an important anchor investor across several such transactions.