Green Bonds

More on Green Bonds

• The auction of sovereign green bonds will take place in two tranches of Rs 8,000 crore each. The RBI will be selling two bonds maturing in five years and 10 years — worth Rs 4,000 crore each — at both auctions.
• Features of Framework:
  • Retail investors: About 5% of the notified amount of sale will be reserved for retail investors and will be eligible for repurchase transactions (Repo).
  • SLR purpose: These bonds will be considered eligible investments for Statutory Liquidity Ratio (SLR) purposes.
  • Tradable: They will be eligible for trading in the secondary market.
  • Non-Resident Investors: These sovereign green bonds will be designated as specified securities under the ‘Fully Accessible Route’ for investment in Government Securities by non-residents.

Drawbacks in the Framework

• Lack of quantitative thresholds: The framework does not specify quantitative thresholds for project categories.
  • Ex: No benchmark or minimum certification has been provided for construction of low-carbon buildings.
  • Similarly, there is no reference to any recognised sustainability standard and/or certification for evaluation and selection of green projects eligible for green expenditure using green bonds.

What are Green Bonds?

• Green bonds are debt instruments issued by any sovereign entity, inter-governmental groups or alliances and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable.

Working of Green Bonds

Importance of Green Bonds

• Tackle climate change: Green Bonds have emerged as an important financial instrument to tackle the threats of climate change and related challenges.
  • Climate change poses a threat for communities and economies, and it affects agriculture, food, and water supplies.
  • A lot of financing is needed to address these challenges, which can be obtained through green bonds.
• Capital for environmentally sustainable projects: Green bonds provide a way to connect environmental projects with capital markets and investors and channel capital towards sustainable development.
• Climate-friendly investments: Green bonds provide a means to hedge against climate change risks while achieving at least similar, if not better, returns on the investment.
• Reduce investments for carbon-emitting projects: The growth in Green Bonds indirectly works to disincentivize high carbon-emitting projects. Environment-friendly and equally rewarding investments can attract future investors.

Sovereign Green Bonds in India

• The Government of India made an announcement to issue Sovereign Green Bonds during the Union Budget 2022-23 to honour its commitment to significantly reduce the carbon intensity of the economy.
• It aims to reduce Emissions Intensity of GDP by 45 per cent from the 2005 level by 2030, and achieve about 50 per cent cumulative electric power installed capacity generated from non-fossil fuel-based energy resources.
• Current source of finance: So far, India’s climate actions have been largely financed from domestic resources and it is now targeting the generation of additional global financial resources from green bonds.
• Expected use of sovereign green bonds in India:
  • The government is expected to use proceeds from green bonds for projects such as renewable energy (solar, wind, biomass and hydropower energy), clean transportation, climate change adaptation, energy efficiency, sustainable water and waste management, pollution and prevention control and green buildings.

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