Sovereign Green Bonds Framework

What’s in today’s article?

• Why in News?
• What is the Context?
•  What are Green Bonds? 
• Are Green Bonds being issued around the World?
• What is India’s Sovereign Green Bonds Framework (SGrBs)? 
• What are the Features of SGrBs? 
• Which Projects are Eligible under SGrBs?

 

Why in news?  

• The Reserve Bank of India (RBI) said that the maiden Sovereign Green Bonds (SGrBs) would be issued in two tranches for an aggregate amount of Rs 16,000 crore.
• The RBI will auction 5-year and 10-year green bonds worth Rs 4,000 crore each on 25 January and on 9 February.
• The proceeds will be utilised for funding public sector projects seeking to reduce carbon emissions.  

 

What is the Context? 

• In Union Budget 2022-23, the Finance Minister Nirmala Sitharaman had announced that sovereign green bonds will be issued for mobilising resources for ‘green projects’.
• Prior to that, Prime Minister Narendra Modi at COP26 in November 2021 had announced India’s commitments under ‘Panchamrit’ to reduce carbon emissions.
• Panchamrit is a set of five commitments that the Prime Minister made at the Conference of Parties (COP26) held at Glasgow, UK. 
• These five commitments are – 
  • To raise the non-fossil fuel based energy capacity of the country to 500 GW by 2030.
  • By 2030, 50% of the country’s energy requirements would be met using renewable energy sources.
  • The country will reduce the total projected carbon emission by one billion tonnes between now and the year 2030.
  • The carbon intensity of the economy would be reduced to less than 45% by 2030.
  • India would become carbon neutral and achieve net zero emissions by the year 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.

 

Are Green Bonds being issued around the world?

• The World Bank is a major issuer of green bonds and issued $14.4 billion of green bonds between 2008 and 2020. 
• These funds have been used to support 111 projects around the world, largely in renewable energy and efficiency (33%), clean transportation (27%), and agriculture and land use (15%).
• By the end of 2020, 24 national governments had issued Sovereign Green, Social and Sustainability bonds totalling a cumulative $111 billion.

 

What is India’s Sovereign Green Bonds Framework (SGrBs)? 

• First announced in the Union Budget 2022-23, the proceeds of these green bonds will be issued for mobilising resources for green infrastructure. 
• Aim – 
  • To mobilise Rs 16,000 crore through the issuance of green bonds in the current fiscal ending March 2023.
• Under the framework, the Finance Ministry will, every year, inform the RBI about spending on green projects for which the funds raised through these bonds will be used.

 

What are the features of SGrBs?

• Issuance Method – 
  • SGrBs will be issued through Uniform Price Auction.
• Eligibility for Repurchase Transactions (Repo) – 
  • SGrBs will be eligible for Repurchase Transactions (Repo). 
  • SGrBs will also be reckoned as eligible investment for Statutory Liquidity Ratio (SLR) purpose.
• Tradability – 
  • SGrBs will be eligible for trading in the secondary market.
• Investment by Non-residents – 
  • SGrBs will be designated as specified securities under the ‘Fully Accessible Route’ for investment in Government Securities by non-residents.

 

Which Projects are Eligible under SGrBs? 

• All eligible green expenditures will include public expenditure undertaken by the government in the form of investment, subsidies, grants-in-aid, or tax foregone (or a combination of all or some of these) or select operational expenditures.
• R&D expenditures in public sector projects that help in reducing the carbon intensity of the economy and enable country to meet its Sustainable Development Goals (SDGs) are also included in the framework.
• The eligible expenditures will be limited to government expenditures that occurred maximum 12 months prior to issuance of the green bonds. 
• Sectors not included – 
  • Nuclear power generation, landfill projects, alcohol/weapons/tobacco/gaming/palm oil industries and hydropower plants larger than 25 MW have been excluded from the framework.

 

Where will the Proceeds go? 

• The framework sets forth the obligations of the Government of India as a green bond issuer.
• The proceeds from the green bonds issuance will be deposited in the Consolidated Fund of India (CFI) in line with the regular treasury policy, and then funds from the CFI will be made available for the eligible green projects.

 

Who is the Implementing Agency? 

• The GFWC will meet at least twice a year to support the Ministry of Finance with selection and evaluation of projects and other work related to the Framework. 
• Initial evaluation of the project will be the responsibility of the concerned Ministry/Department in consultation with experts.
• The allocation of the proceeds will be reviewed in a time-bound manner by the GFWC to ensure that the allocation of proceeds is completed within 24 months from the date of issuance.

 

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Q1) What qualifies as a Green Bond? 

Green bonds are financial instruments that finance green projects and provide investors with regular or fixed income payments. Over the last 14 years, green bonds have become an important tool to address the impacts of climate change and related challenges.

 

Q2) What is ‘Panchamrit’?

‘Panchamrit’ is India’s commitment to reduce carbon emissions: Increasing renewable to 500 GW (gigawatt) by 2030, meeting 50% of its energy requirements from “renewable energy” by 2030, reducing the total projected carbon emissions by one billion tonnes from now till 2030, reducing carbon intensity of its economy by more than 45%, and achieve the target of “Net Zero,” by 2070.

 

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Source: RBI to issue green bonds in two tranches of Rs 8,000 cr each   |  Livemint