India’s First Sovereign Green Bonds Framework

Why in News?:

Recently, the Union Minister for Finance & Corporate Affairs has approved thefinal Sovereign Green Bonds Framework of India.

Sovereign Green Bonds will be issued for mobilising resources for green projects.

What is Sovereign Green Bonds Framework?:

The Framework comes close on the footsteps of India’s commitments under “Panchamrit” as elucidated by the Prime Ministerat Conference of Parties (COP) 26 at Glasgow in November 2021.

It will further strengthen India’s commitment towards its Nationally Determined Contribution (NDCs) targets, adopted under the Paris Agreement.

Green Finance Working Committee (GFWC) was constituted to validate key decisions on issuance of Sovereign Green Bonds.

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.

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’.

What are Sovereign Green Bonds?:Green bonds are issued by companies, countries and multilateral organisations to exclusively fund projects that have positive environmental or climate benefits andprovide investors with fixed income payments.

The projects can include renewable energy, clean transportation and green buildings, among others.

Proceeds from these bonds are earmarkedfor green projects. This is unlike standard bonds, the proceeds of which can be utilized for various purposes at the discretion of the issuer.

By the end of 2020, 24 national governments had issued Sovereign Green, Social and Sustainability bonds totalling a cumulative USD 111 billion dollars, according to the London-based Climate Bonds Initiative.

Benefits of Sovereign Green Bonds:

Sovereign green issuance sends a powerful signal of intent around climate action and sustainable development to governments and regulators.

With the International Energy Agency’s (IEA) World Energy Outlook 2021, estimating that 70% of the additional USD 4 trillion spending to reach net-zero is required in emerging/developing economies, sovereign issuance can help kickstart these large inflows of capital.

Development of a sovereign green benchmark could eventually lead to the creation of a vibrant ecosystem of raising green bonds from international investors.