The Pension Fund Regulatory and Development Authority (PFRDA), a statutory regulatory body established in 2014 under the PFRDA Act, plays a crucial role in promoting old age income security and safeguarding the interests of pension fund subscribers in India. Recently, the Chairman of PFRDA expressed a keen interest in pension funds investing in sovereign green bonds (SGBs). The government is expected to issue sovereign green bonds in the second half of the current financial year as part of its overall market borrowing programme.
Understanding Sovereign Green Bonds
Sovereign green bonds are a unique financial instrument issued by sovereign entities, inter-governmental groups, alliances, and corporates to raise funds for environmentally sustainable projects. The primary purpose of these bonds is to channel capital towards initiatives that combat climate change, promote renewable energy, and foster other eco-friendly projects. Unlike regular bonds, sovereign green bonds have a longer maturity period, making them ideal for supporting long-term sustainability initiatives.
India’s Framework for Sovereign Green Bonds
India’s commitment to sustainable development is evident in its introduction of the framework for sovereign green bonds on November 9, 2022. By issuing these bonds, India aims to raise capital that will be exclusively utilized to finance projects with positive environmental impacts. The country’s strong emphasis on sovereign green bonds reflects its determination to address pressing environmental challenges while attracting socially responsible investors.
Global Pioneers in Green Bonds
The concept of green bonds originated in 2007, but it wasn’t until 2016 that they gained significant traction. Apple, the renowned tech giant, was the first company to issue green bonds, followed by Poland, which became the first country to do so. Since then, the market for green bonds has grown substantially. Currently, the European Investment Bank stands as the leading issuer of green bonds worldwide, playing a pivotal role in financing climate and environmental projects across various continents.
Key Role of PFRDA in Pension Sector
The PFRDA operates under the aegis of the Ministry of Finance and is entrusted with the critical responsibility of regulating the National Pension System (NPS) and other pension schemes covered under the PFRDA Act. The primary objective of the PFRDA is to ensure old age income security by effectively developing and regulating pension funds while safeguarding the interests of pension fund subscribers.
Functions and Responsibilities of PFRDA
The PFRDA carries out an array of functions to achieve its objectives effectively:
- Regulate National Pension System (NPS) and other pension schemes: PFRDA sets the guidelines and regulations for NPS and ensures compliance among the various pension schemes it regulates.
- Establish and regulate pension funds: The authority is responsible for overseeing the establishment and functioning of pension funds to ensure transparency and accountability.
- Protect the interest of pension fund subscribers: PFRDA works diligently to safeguard the rights and interests of individuals who contribute to pension funds.
- Register and regulate intermediaries: The authority registers and regulates intermediaries involved in pension funds’ management, ensuring their adherence to established norms.
- Corpus management norms: PFRDA lays down guidelines for the efficient management of pension funds’ corpus to optimize returns and minimize risks.
- Grievance redressal mechanism: PFRDA provides a robust grievance redressal mechanism for subscribers to seek resolution in case of any issues or concerns related to their pension funds.
- Dispute settlement: The authority plays a crucial role in resolving disputes that may arise between intermediaries and subscribers or among intermediaries themselves.