India’s First Sovereign Green Bonds Framework

• The final Sovereign Green Bonds Framework of India was just authorised by the Union Minister for Finance & Corporate Affairs.
• It will be possible to raise money for green projects by issuing sovereign green bonds.

What is the framework for sovereign green bonds?

• The Framework closely follows the Prime Minister's explanation of India's "Panchamrit" pledges at the Conference of Parties (COP) 26 in Glasgow in November 2021.
• India's dedication to its Nationally Determined Contribution (NDC) targets, set forth under the Paris Agreement, would be further strengthened.
• In order to approve important choices for the issuing of Sovereign Green Bonds, the Green Finance Working Committee (GFWC) was established.
• The framework has received a "Good" governance score and a "Medium Green" rating from the independent second opinion provider CICERO in Norway.
• The project or solution is given the "Medium Green" classification if it "represents important progress towards the long-term objective, but is not quite there yet."
• Both biomass-based renewable energy projects that depend on feedstock from "protected areas" and all fossil fuel-related initiatives have been excluded from the framework.

Sovereign Green Bonds: What Are They?

• Companies, nations, and international organisations all offer green bonds, which guarantee fixed-income payments to investors while only funding initiatives that benefit the environment or the climate.
• The initiatives could involve, among other things, green buildings, sustainable transportation, and renewable energy.
• These bonds' earnings are designated for environmental projects. This is different from regular bonds, which allow the issuer to use the proceeds for a variety of things.
• According to the London-based Climate Bonds Initiative, by the end of 2020, 24 national governments would have issued sovereign green, social, and sustainability bonds worth a total of USD 111 billion.

Sovereign green bonds' advantages

• Governments and authorities are sent a strong signal of intent about climate change and sustainable development by sovereign green issuance.
• Sovereign issuance can assist jump-start these significant capital inflows, as the International Energy Agency (IEA) World Energy Outlook 2021 estimates that 70% of the additional USD 4 trillion investment to reach net-zero is necessary in emerging/developing nations.
• The formation of a sovereign green benchmark could eventually result in the emergence of a thriving market for the issuance of green bonds by foreign investors.

International Status:

• Europe accounts for almost half of the estimated USD 40 trillion in Environmental, Social, and Governance (ESG) funds.
• By 2025, it is predicted that around one-third of all global assets under management will be made up of ESG assets.
• Around USD 2 trillion is invested in ESG debt funds, of which over 80% are "environmental" or green bonds, with the remaining funds invested in social and sustainability bonds.

National Status:

• Indian organisations have issued green bonds worth more than USD 18 billion, according to the Climate Bonds Initiative, a global organisation striving to mobilise funds for climate change.