GREEN BONDS

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Context

• The Reserve Bank of India (RBI) announced that it will, for the first time, issue Sovereign Green Bonds (SgrBs) worth Rs 16,000 crore.

What are Green Bonds?

• Green bonds are debt securities specifically destined for the funding or refunding of green projects, i.e. projects that are sustainable and socially responsible in areas as diverse as renewable energy, energy efficiency, clean transportation or responsible waste management.
• They commit the use of the funds obtained to an environmental project or one related to climate change.
• They are issued by any sovereign entity, inter-governmental groups or alliances and corporates.
• Green Bonds finance projects that help reduce the effects of climate change or protect the environment. 
• Proceeds from these bonds are utilized for projects classified as environmentally sustainable.
• The very first green bond was issued in 2007 by multilateral institutions European Investment Bank (EIB) and World Bank. 

Importance of Green Bonds

• Climate change threatens communities and economies, and it poses risks to agriculture, food, and water supplies. A lot of financing is needed to address these challenges.
• Green Bonds can be 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 toward sustainable development. Green Bonds are a way to make that connection.

Green Bonds in India

• In 2021, the government said it stands committed to reduce the Emissions Intensity of GDP by 45 percent from the 2005 level by 2030.
• It further aims to achieve about 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.
• In line with the commitment to significantly reduce the carbon intensity of the economy, the Union Budget 2022-23 made an announcement to issue Sovereign Green Bonds.

Application of Green Bonds in India

• The government will use the proceeds raised from SGrBs to finance or refinance expenditures 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.

Closing Thoughts

• Over the last 14 years, green bonds have become an important tool to address the impacts of climate change and related challenges.
• Green financing will increase the level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities.
• The issuance of Sovereign Green Bonds will help the Government of India (GoI) in tapping the requisite finance from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy.