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.

Source: The Indian Express

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