Sovereign Green Bonds (SGrB)

Why in news?

The Government and the RBI decided to issue sovereign green bonds during 4^th quarter (Q4) of FY23.

What are sovereign green bonds (SGrB)?

In 2016, Poland government issued the first sovereign green bond.

• Sovereign green bond - A sovereign green bond is a debt instrument issued by the central or state government to borrow money from investors.
• It is based on the commitment that the mobilised fund will be spent on climate or eco-system related activities.
• Classification - A project is classified “green” on the basis of four key principles which include
  • Encouraging energy efficiency in resource utilisation
  • Reducing carbon emissions and greenhouse gases
  • Promoting climate resilience
  • Improving natural ecosystems and biodiversity
• Need
  • To reduce the carbon intensity of the economy
  • To mobilise resources for green infrastructure
  • To achieve objectives, such as climate change mitigation, net-zero, climate change adaptation, environment protection, and natural resource conservation
  • To target global financial resources for financing climate actions

How are they different from conventional government bonds?

• Conventional government bonds - Government bonds or government securities (G-Secs) are normally categorised into two types.
• Treasury Bills - Treasury Bills have a maturity of less than one year and they do not carry coupon rates.
• These are issued at a discount, while redeemed at face value.
• Dated or long-term securities - They are issued for a period above 1 year and up to 40 years.
• These bonds carry coupon rates and are tradable in the securities market.
• Sovereign green bond - SGrB is one form of dated security.
• It will have a tenor and interest rate.
• Money raised through SGrB is part of overall government borrowing. 
• SRgB may carry lower interest rate than that for regular government borrowings.

What are the key features of the SGrB framework?

• Proceeds - The proceeds from the Sovereign Green bonds will be deposited to the Consolidated Fund of India (CFI) in line with the regular treasury policy.
• Buyers- Both domestic and international investors are expected to be interested in SGrB.
• Green projects - It includes renewable energy, energy efficiency, clean transportation, climate change adaptation, green building, sustainable water and waste management, pollution prevention and control, terrestrial and aquatic biodiversity conservation projects, etc.
• No go areas - The framework also lists no-go areas for SGrb such as nuclear power generation, direct waste incineration, alcohol, weapons, tobacco, gaming, palm oil industries etc.
• Green Finance Working Committee - For evaluating and selecting a particular project, the framework talks about a Green Finance Working Committee (GFWC).
• Allocation - The allocation and utilisation of green bonds will be under the purview of the Comptroller and Auditor General.
• SOP - A second opinion provider (SOP) of green bond frameworks, has reviewed India’s green bond framework and approved its alignment with the ICMA Green Bond Principles.

References

1. The Hindu Businessline│ What’s different about SGrBs?
2. Mongabay│ A framework for sovereign green bonds
3. ICMA│ International Capital Market Association