The RBI said it will issue 5-year and 10-year green bonds of Rs 4,000 crore each on January 25 and February 9. (File)
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Green Bonds out Jan 25: What they are, what they mean for investors, environment
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On Friday (January 6), the Reserve Bank of India (RBI) announced that it will, for the first-time, issue Sovereign Green Bonds (SgrBs) worth Rs 16,000 crore, in two tranches of Rs 8,000 crore each in the current financial year. The RBI said it will issue 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. The framework for the sovereign green bond was issued by the government on November 9, 2022.
Why are these bonds important?
Over the last few years, Green Bonds have emerged as an important financial instrument to deal with the threats of climate change and related challenges. According to the International Finance Corporation (IFC), a World Bank Group’s institution, climate change threatens communities and economies, and it poses risks for agriculture, food, and water supplies.
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A lot of financing is needed to address these challenges. It’s critical to connect environmental projects with capital markets and investors and channel capital towards sustainable development – and Green Bonds are a way to make that connection.
How beneficial is it for investors?
Green Bonds offer investors a platform to engage in good practices, influencing the business strategy of bond issuers. They provide a means to hedge against climate change risks while achieving at least similar, if not better, returns on their investment. In this way, the growth in Green Bonds and green finance also indirectly works to disincentivise high carbon-emitting projects, as per the IFC.
When did Govt plan these bonds?
In August last year, the government said it stands committed 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 from non-fossil fuel-based energy resources by the same year.
In line with the commitment to significantly reduce the carbon intensity of the economy, the Union Budget 2022-23 made an announcement to issue Sovereign Green Bonds.
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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 the Sovereign Green Bonds will help the Indian government in tapping the requisite finance from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy.
Where will the proceeds go?
The government will use the proceeds raised from SGrBs to finance or refinance expenditure (in parts or whole) for various green projects, including in renewable energy, clean transportation, energy efficiency, climate change adaptation, sustainable water and waste management, pollution and prevention control and green buildings. In renewable energy, investments will be made in solar, wind, biomass and hydropower energy projects.
