Green Bonds

The Reserve Bank of India (RBI) has announced that it will be issuing Sovereign Green Bonds (SgrBs) worth Rs 16,000 crore, in two tranches of Rs 8,000 crore each in the current financial year. This is the first time that the RBI will be issuing these bonds. The bonds will be issued in two tranches of 5-year and 10-year green bonds of Rs 4,000 crore each on January 25 and February 9.

What are Green Bonds?

  • Green bonds are bonds 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.
  • These bonds have been gaining popularity as a way for investors to engage in good environmental practices and for companies and governments to raise capital for sustainable development projects.

Why are these bonds important?

  • Green bonds have emerged as an important financial instrument to deal with the threats of climate change and related challenges. Climate change poses risks to communities and economies, and it is important to address these challenges through financing sustainable development projects. Green bonds provide a way to connect environmental projects with capital markets and investors and channel capital towards sustainable development.

Benefits for investors

  • For investors, green bonds offer a platform to engage in good practices and influence the business strategy of bond issuers. They also provide a means to hedge against climate change risks while achieving at least similar, if not better, returns on their investment. In addition, the growth in green bonds and green finance works to disincentivize high-carbon emitting projects.

Government’s plan

  • The government had announced plans to issue Sovereign Green Bonds in the Union Budget of 2022-23. The country’s climate actions have so far been largely financed from domestic resources and it is now targeting generation of additional global financial resources.
  • The issuance of these bonds will help the Indian government tap into the requisite finance from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy.

Uses of proceeds

  • The government will use the proceeds raised from SGrBs to finance or refinance expenditure (in parts or whole) for various green projects. These projects include renewable energy, clean transportation, energy efficiency, climate change adaptation, sustainable water and waste management, pollution and prevention control and green buildings. These investments will be made in solar, wind, biomass and hydropower energy projects, among others.

The Reserve Bank of India’s decision to issue sovereign green bonds for the first time is an important step towards addressing the challenges posed by climate change. These bonds provide an opportunity for investors to engage in good environmental practices and for the government to raise capital for sustainable development projects. The proceeds from the bonds will be used to fund a range of green projects, including in renewable energy, clean transportation and energy efficiency, which will play a crucial role in reducing carbon emissions and addressing the challenges of climate change.

 

Written by IAS POINT

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