Green Bonds

News: Recently, the finance minister in the Budget 2022 announced that the government proposes to issue sovereign green bonds to mobilise resources for green infrastructure. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy. The announcement is in sync with India’s commitment to achieving net-zero carbon emissions by 2070.

What are Green Bonds?

  • Green bonds are issued by companies, countries and multilateral organisations to exclusively fund projects that have positive environmental or climate benefits and provide investors with fixed income payments.
  • The projects can include renewable energy, clean transportation and green buildings, among others.
  • Proceeds from these bonds are earmarked for green projects. This is unlike standard bonds, the proceeds of which can be utilised for various purposes at the discretion of the issuer.
  • The international green bond market has seen cumulative issuance worth more than USD 1 trillion since market inception in 2007.
  • By the end of 2020, 24 national governments had issued Sovereign Green, Social and Sustainability bonds totalling a cumulative USD 111 billion dollars, according to the London-based Climate Bonds Initiative.
  • Sovereign green issuance sends a powerful signal of intent around climate action and sustainable development to governments and regulators.
  • It will catalyze domestic market development and provides impetus to institutional investors.
  • It will provide benchmark pricing, liquidity and a demonstration effect for local issuers, helping to support the growth of a local market. With the IEA’s World Energy Outlook 2021, estimating that 70% of the additional USD 4 trillion spending to reach net-zero is required in emerging/developing economies, sovereign issuance can help kickstart these large inflows of capital.