Sovereign Green Bonds (SGrBs)

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.

1. 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.

2. Key Objectives

1. Promote Renewable Energy & Green Projects: Financing solar, wind, and hydro projects.
2. Meet Climate Commitments: Help India fulfill obligations under the Paris Agreement & COP26.
3. Develop Green Finance Market: Boost India’s participation in the global green bond market.
4. Reduce Carbon Footprint: Fund projects that cut greenhouse gas emissions.

3. Sovereign Green Bond Framework (2022)

India’s SGrB framework, based on the Green Bond Principles (GBP) of ICMA, includes:

1. Eligible Green Expenditures

1. Renewable Energy – Solar, wind, biomass, small hydro.
2. Energy Efficiency – Green hydrogen, LED street lighting.
3. Clean Transportation – Electric vehicles (EVs), charging infrastructure, metro rail.
4. Sustainable Water Management – Wastewater treatment, water conservation.
5. Climate Change Adaptation – Disaster resilience, flood management.
6. Pollution Control – Waste management, bio-remediation projects.

1. Excluded Sectors

• Nuclear power projects.
• Fossil fuel-based projects (coal, oil, gas).
• Alcohol, tobacco, gambling-related industries.

4. 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.

5. 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.

6. 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.

7. 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.