GS 3 – ECONOMY
A Sovereign Green Bond (SGrB) is a debt instrument issued by the government to raise capital for projects that promote environmental sustainability. These bonds are part of India’s commitment to green finance and climate action.
- Features
- Sovereign Green Bonds are government-issued bonds where the proceeds are exclusively used for green projects.
- These bonds align with India’s commitment to achieving net-zero emissions by 2070.
- First issued in India in FY 2022-23, following the announcement in Union Budget 2022-23.
- The Reserve Bank of India (RBI) manages the issuance.
- Key Objectives
- Promote Renewable Energy & Green Projects: Financing solar, wind, and hydro projects.
- Meet Climate Commitments: Help India fulfill obligations under the Paris Agreement & COP26.
- Develop Green Finance Market: Boost India’s participation in the global green bond market.
- Reduce Carbon Footprint: Fund projects that cut greenhouse gas emissions.
- Sovereign Green Bond Framework (2022)
India’s SGrB framework, based on the Green Bond Principles (GBP) of ICMA, includes:
- Eligible Green Expenditures
- Renewable Energy – Solar, wind, biomass, small hydro.
- Energy Efficiency – Green hydrogen, LED street lighting.
- Clean Transportation – Electric vehicles (EVs), charging infrastructure, metro rail.
- Sustainable Water Management – Wastewater treatment, water conservation.
- Climate Change Adaptation – Disaster resilience, flood management.
- Pollution Control – Waste management, bio-remediation projects.
- Excluded Sectors
- Nuclear power projects.
- Fossil fuel-based projects (coal, oil, gas).
- Alcohol, tobacco, gambling-related industries.
- India’s Sovereign Green Bond Issuance
- First issuance: January 2023.
- Total amount raised: ₹16,000 crore in two tranches.
- Tenure: 5 years and 10 years.
- Interest rates: Lower than conventional government bonds due to high demand.
- Investors: Foreign investors, banks, mutual funds, insurance firms.
- Significance of Sovereign Green Bonds
- Enhances Green Financing – Attracts capital for eco-friendly projects.
- Reduces Cost of Borrowing – Green bonds have lower yields than regular bonds.
- Boosts India’s Climate Leadership – Strengthens India’s position in climate negotiations.
- Encourages Private Sector Participation – Sets a benchmark for corporate green bonds.
- Challenges & Concerns
- Greenwashing Risks – Misuse of funds for non-green projects.
- Limited Awareness – Investors may lack knowledge about green finance.
- High Monitoring Costs – Ensuring compliance with green objectives is expensive.
- Foreign Exchange Risks – If issued internationally, currency fluctuations can impact returns.
- Way Forward
Strong Regulatory Framework – Transparent reporting and impact assessment.
Tax Incentives – Encourage domestic investment in green bonds.
Expand Issuance – Increase volume to support large-scale green projects.
Public-Private Partnerships – Attract more private sector investment.
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Mains question
Discuss the significance of Sovereign Green Bonds (SGrBs) in India’s green finance strategy. How do these bonds contribute to sustainable development and climate commitments? (250 words)
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