Why is it in the News?

Recently, the RBI approved FIIs such as insurance companies, pension funds, and sovereign wealth funds to invest in India's Sovereign Green Bonds (SGrBs), which finance projects aiming to advance India's shift to a low-carbon economy.

What are Green Bonds?

• Green bonds are bonds issued by any sovereign entity, inter-governmental groups or alliances, and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable.
• The framework for the sovereign green bond was issued by the government on November 9, 2022.

Why are these bonds important?

• Over the last few years, Green Bonds have emerged as an important financial instrument to deal with the threats of climate change and related challenges.
• According to the International Finance Corporation (IFC), a World Bank Group’s institution, 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.
• It’s critical to connect environmental projects with capital markets and investors and channel capital towards sustainable development – and Green Bonds are a way to make that connection.

When did Govt plan these bonds?

• In August 2022, the government said it stands committed to reducing the Emissions Intensity of GDP by 45 percent from the 2005 level by 2030 and achieving about 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by the same year.
• In line with the commitment to significantly reduce the carbon intensity of the economy, the Union Budget 2022-23 announced to issue of Sovereign Green Bonds.
• The country’s climate actions have so far been largely financed from domestic resources and it is now targeting the generation of additional global financial resources.
• The issuance of the Sovereign Green Bonds will help the Indian government in tapping the requisite finance from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy.

Where will the proceeds go?

• The government will use the proceeds raised from SGrBs to finance or refinance expenditure (in parts or whole) for various green projects, including 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.