Sovereign Green Bonds Framework

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Overview:

The government recently approved the final sovereign green bonds framework in line with the Budget announcement (Union Budget FY 2022-23).

About Sovereign Green Bonds Framework:

  • Green bonds are financial instruments that generate funds for investment in environmentally sustainable and climate-suitable projects.
  • Also, green bonds command a relatively lower cost of capital compared to regular bonds.
  • This approval will further strengthen India’s commitment towards its Nationally Determined Contribution targets, adopted under the Paris Agreement. It will help in attracting global and domestic investments in eligible green projects.
  • The proceeds generated from the issuance of such bonds will be deployed in Public Sector projects which help in reducing carbon intensity of the economy.
  • The proceeds will be deposited to the Consolidated Fund of India (CFI) in line with the regular treasury policy, and then funds from the CFI will be made available for eligible green projects.
  • Every year, the finance ministry will inform RBI about the spending on green projects for which the funds raised through these bonds will be used.
  • The framework comes close in the footsteps of India’s commitments under “Panchamrit” as elucidated by Prime Minister Narendra Modi at COP26 at Glasgow in November 2021.

Exception:

  • The government has excluded nuclear power and large hydropower projects of over 25 MW from the ambit of investments to be made through the issuance of sovereign green bonds.
  • All fossil fuel-related projects have been kept out of the framework, along with biomass-based renewable energy projects that rely on feedstock from ‘protected areas’.

Medium Green rating:

  • The framework has been rated ‘Medium Green’, with a “Good” governance score by a Norway-based independent second opinion provider CICERO. The ‘Medium Green’ rating is assigned ‘to projects and solutions that represent significant steps towards the long-term vision, but are not quite there yet’.

Green Finance Working Committee (GFWC):

  • The Union Finance Ministry has constituted a Green Finance Working Committee (GFWC) with representation from relevant Ministries and chaired by Chief Economic Adviser, Government of India.
  • The committee will meet at least twice a year to support Ministry of Finance with selection and evaluation of projects.
  • 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.

Source : Indian Express