Green bonds are financial instruments that are issued by governments of different nations, corporations, and multilateral organizations with the objective of funding projects which have positive environmental benefits. The only difference between Green bonds and other bonds is that the money is raised by the investors and it is only used to support initiatives that contribute to the planet and its sustainability. The popularity of green bonds has been rising increasingly over the last few years. Sovereign Green Bonds are a form of debt instrument issued by the Government of India to investors with a perspective of raising money and the objective to finance resources for green infrastructure and renewable energy.
The Government of India for the first time will be issuing the Sovereign Green Bonds in two tranches to raise 16,000 crores in one month. The Sovereign Green Bond framework was finally put into practice in November after it was announced in the Budget 2022-23.
The Reserve Bank of India (RBI) will auction the 5-year and 10-year green bonds of 4,000 crores each on January 25th and February 9th at a uniform price auction. The money raised through the auction will be part of the Government Borrowing. It will have lower interest rates than other government borrowings.
Green Bonds: Powerful move towards Climate Action
Green Bonds are issued to the companies to encourage them to invest more in ‘Green Projects’.
The framework announced by the Government of India for the Sovereign Green Bonds (SGrB), defines Green Projects – clean transportation, climate change adaptation, water and waste management, adoption of renewable energy, management of living resources, control and prevention of pollution, and biodiversity conservation projects.
For the transparency of the framework, the allocation report will be updated annually and it will be under the purview of the Comptroller and Auditor General of India.
India’s climate actions were funded by the domestic resources which were available to the government, but the government is now trying for international financial resources as well. The important goal is to deploy funds into public sector projects which helps in reducing the carbon intensity of the economy.
The goal of investing in ‘Green Projects’ will help in encouraging efficiency in the utilization of resources. It helps in the promotion of climate resilience and also improves our natural ecosystem and biodiversity. It mainly targets environmentally sustainable initiatives.
Green Bonds promotes clean energy and aims to put it at the heart of the Indian economy.
It has been globally expanding at a fast pace in the market which provides India with long-term funds at competitive rates to finance various projects. They help in financing environmentally friendly technologies which ensure sustainable growth and development. The risk is further reduced for the investors as they do not bear any project-related risks in such bonds.
Green bonds have their share of challenges that also need to be addressed. Foreign investors may be hesitant to invest such a huge amount considering the currency risk involved with exchange rates. Green bonds majorly depend on the robustness of the bond market of a particular country which indicates that it requires credit enhancement. There is a risk of Greenwashing as well which refers to the deceptive promotion of the perception that a project’s policies and aims are actually environment friendly. Green bonds are issued by the sovereign guarantee which will indefinitely have low returns.
The Government of India has taken initiative to encourage ‘green bonds’ as a mode of finance. It has introduced such initiatives in line with the target of net-zero carbon emissions by 2070. India focuses on acquiring global financial resources for financing climate actions which focus on environment protection and climate change mitigation.
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