Sovereign Green Bonds

Sovereign Green Bonds

News: 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. 

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. 
• Green Bonds have emerged as an important financial instrument to deal with the threats of climate change and related 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 will they help 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. 

When did the government plan to issue such bonds?
• The Union Budget 2022-23 made an announcement to issue Sovereign Green Bonds. 
• 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. 

Where will the funds be utilized?
• 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.