The RBI Details Sovereign Green Bond Sales For The First Time
The Reserve Bank of India (RBI) is, for the first time, going to issue Sovereign Green Bonds (SGrBs) worth Rs 16,000 Crore in two tranches of Rs 8,000 Crore each in the current financial year. A 5-year and a 10-year green bond of Rs 4,000 Crore each will be issued on January 25 and February 9. However, These green bonds have already been announced in the previous Union Budget 2022-23 as part of its overall market borrowing for mobilising resources for green infrastructure projects and the proceeds deployed for public sector projects which will help in reducing the carbon intensity of the economy. For the fiscal year, market borrowing is expected to reach a record high of Rs 14.21 trillion.
A Green Bond is a type of fixed-income instrument or debt security used by an issuer entity like government, intergovernmental alliance, corporates etc. specifically to finance projects that have a positive environmental impact unlike a climate bond which is used to reduce carbon emissions or alleviate the effects of climate change. The European Investment Bank, the financing arm of the European Union, issued the first green bond in 2007. The World Bank came after this a year later. Since then, other governmental entities and businesses have entered the market to fund green initiatives. More than 50 nations have now released green bonds, with the United States serving as the primary source of these issuances. The group predicted that $350 billion in green bonds would be issued globally in 2020.
With dynamic climate change, the importance of Green Bonds are worth demanding. These bonds have emerged as an important financial instrument to deal with climate change and related changes. Communities and economies are threatened with climate change and posed with risks such as agriculture, food and water supplies. These risks can be dealt with larger financing. It, therefore, is critical to connect environmental projects and capital markets and investors to channelise capital towards sustainable development. Green bonds are a way to establish that connection.
Green bonds are becoming ever more popular, largely due to investors' embrace of socially conscious investing and not because they offer greater risk and return prospects than traditional bonds. Green bonds may provide tax benefits including tax exemptions and tax credits. It is carried out to entice financiers to fund initiatives that improve the environment and/or climate. By promoting green bonds and green finance, high carbon-emitting projects are also indirectly discouraged.
Domestic sources contribute large amounts of finance to the country's climate action. It is now focussing on the generation of additional global financial resources. The framework would increase India's dedication to the goals set forth in its Nationally Determined Contribution under the Paris Agreement and aid in luring local and foreign capital to suitable green projects. Analysts claim that the development of a favourable ecosystem for such assets, as is the case in certain nations, will be crucial to the government's goal to issue green bonds. Particularly for the successful issuance of green bonds, a strong global investor network would be necessary.