Sovereign Green Bonds:
Like several emerging markets, India also turned to sovereign green bonds to help fund its transition to a low-carbon economy, but investor demand remains weak.
- SGBs are debt securities issued by a national government to fund projects that have positive environmental benefits.
- The proceeds from these bonds are exclusively allocated to green initiatives, which can include renewable energy projects, sustainable agriculture, waste management, and more.
- Essentially, these bonds are a way for governments to raise capital while promoting environmental sustainability.
- The Union Budget 2022-23 announced the issue of SGBs. The framework for the SGBs was issued by the government on November 9, 2022.
- The government’s framework is based on the International Capital Market Association’s (ICMA) listed principles for issuing green bonds, which has four components:
- Use of proceeds, project evaluation and selection, management of proceeds, and reporting.
- The government said the bonds’ proceeds will be used for green projects that:
- Encourage energy efficiency
- Reduce carbon emissions and greenhouse gases
- Promote climate resilience and/or adaptation
- Improve natural ecosystems and biodiversity, especially in accordance with the principles of sustainable development goals
- The framework listed investments in solar, wind, biomass, and hydro energy projects, and urban mass transportation projects such as metro rail, green buildings, pollution prevention and control projects.
- The government excluded projects such as fossil fuels, nuclear power generation, and direct waste incineration.
- The eligible expenditure is limited to government spending that occurred not more than 12 months prior to issuance.
- The proceeds should be allocated to projects within 24 months of issuing the bonds.
- If an eligible green project is postponed or cancelled, it will be replaced by another eligible green project.
