What are Green Bonds?

The green bond is a financial instrument that is specifically designated to fund environmentally sustainable projects. These bonds can be issued by a variety of entities, including sovereign nations, corporates, intergovernmental groups, or alliances. The main purpose of green bonds is to address environmental challenges such as climate change and the associated challenges of agriculture, food security, and water security.

In November 2022, RBI had released a framework for the issuance of sovereign green bonds. Recently, RBI auctioned two such bonds, with tenures of five and ten years, worth Rs. 4,000 crore each. These bonds were designated as the New GOI SGrB 2028 and New GOI SGrB 2033.

Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is the central bank of India and acts as the regulator of the country’s monetary policy. The bank was established in 1935 and serves as a regulator for the country’s banking system, as well as playing a key role in the Indian government’s economic policy. The RBI is responsible for issuing currency, maintaining price stability, and ensuring the smooth functioning of the financial system.

Green Bonds

Bonds are debt securities that are issued to finance environmentally friendly projects. They are similar to traditional bonds in that they pay a fixed or floating coupon and have a maturity date. However, green bonds are distinguished by the fact that the proceeds of the bond issuance are used exclusively to finance or refinance projects or assets that have environmental benefits.

Sovereign Bonds

Sovereign bonds are debt securities issued by a government to raise funds. They are considered to be among the safest investments due to the creditworthiness of the issuing government. Sovereign bonds are generally issued in local currency, but they may also be issued in foreign currency. They are usually sold to institutional investors such as pension funds, insurance companies, and central banks.

Implications of Green Bonds

Release of a framework for the issuance of sovereign green bonds represents a significant step forward for India in addressing the challenges of climate change. By providing funding for environmentally sustainable projects, these bonds will help the country to mitigate the impacts of climate change and build a more sustainable future. Green bonds are an important tool for addressing the challenges of climate change and promoting sustainable development. As more and more countries, like India, recognize the importance of these financial instruments, we can expect to see a growing number of green bond issuances in the future.