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Decoded: What are sovereign green bonds, and why are they called so?

Both markets and environmentalists have been a thumbs-up to the Budget 2022 proposal to issue Sovereign Green Bonds. What are these bonds, and why are they called green?

Topics
Decoded | Green bonds | Environment

Krishna Veera Vanamali 

Three months ago, Prime Minister Narendra Modi had sprung a surprise at conference in Glasgow, Scotland by announcing that India will achieve net zero carbon emissions by 2070.
 
Since then, the government has taken a series of steps in that direction. Another such step was announced in the Union Budget tabled Tuesday by Union Finance Minister Nirmala Sitharaman.
 
She said that as a part of the government’s overall market borrowings in 2022-23, Sovereign will be issued for mobilising resources for green infrastructure. The proceeds from these bonds will be deployed in public sector projects which help in reducing the carbon intensity of the economy. The government has unveiled a record borrowing of Rs 14.95 trillion in FY23.
 
The budget included several measures on climate action such as the battery swapping policy and the additional allocation of Rs 19,500 crore under the PLI scheme for manufacturing high efficiency solar modules.
 
The government is introducing a new bill that aims to provide a regulatory framework for Carbon Trading in India to Encouraging penetration of renewables in energy mix.
 
Gagan, Director of the CEEW Centre for Energy Finance, has said the budget proposal to issue sovereign signals the country's seriousness in pursuing climate action.
 
are issued by companies, countries and multilateral organisations to exclusively fund projects that have positive environmental or climate benefits and provide investors with fixed income payments. The projects can include renewable energy, clean transportation and green buildings, among others.
 
Proceeds from these bonds are earmarked for green projects. This is unlike standard bonds, the proceeds of which can be utilised for various purposes at the discretion of the issuer.
 
Green bonds issuers are also required to provide details regarding the project they intend to finance as well as its expected climate and environmental impacts.
 
These bonds can be marketed toward Environmental, Social and Governance or ESG-focused funds. The green bond market has seen cumulative issuance worth more than $1 trillion since market inception in 2007.
 
By the end of 2020, 24 national governments had issued Sovereign Green, Social and Sustainability bonds totalling a cumulative $111 billion dollars, according to the London-based Climate Bonds Initiative.
 
A survey by the non-profit organisation outlined multiple benefits to sovereign green issuance which included interest saving costs and a reputational boost.

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First Published: Thu, February 03 2022. 08:45 IST
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