India is committed to preserving the environment through
Article 48-A of our constitution. One of the ways through which India is
working towards the above cause is by issuing sovereign green bonds. Investors
purchase these bonds, and the funds are used exclusively for initiatives that
have a positive impact on the environment, like renewable energy or sustainable
infrastructure. As the country continues to explore innovative financing
mechanisms, green bonds are expected to remain a key instrument in mobilizing
capital for projects that address environmental and climate challenges.
In today’s newsletter, we talk about the steps taken by the
Government of India (GoI) to leverage green bonds as a tool for sustainable
development, challenges, opportunities, and their impact on the Indian market.
In the 2022-23 Union Budget, the GoI announced the issuance
of Sovereign Green Bonds (SGrBs) totalling US$ 193M as part of its strategy to
raise funds for eco-friendly infrastructure initiatives. This decision was
officially communicated on Sept 29, 2022, through the semi-annual issuance
schedule for marketable dated securities for the latter half of the fiscal year
2022-23.
On Jan 25, 2023, India issued the first tranche
of its first sovereign green bond worth US$ 980M. As of Feb 2023, Indian green
bond issuances reached a total of US$ 21B with the private sector accounting
for 84% of the total issuances.
In
India, green bonds face hurdles like limited awareness, costly certification,
lack of standardized frameworks, and an underdeveloped market. These obstacles
need to be overcome to unlock the vast potential of green bonds.
While still evolving, India's presence signifies its
commitment to addressing environmental challenges and contributing to the
global transition towards green finance and sustainability.
India is actively working to leverage green bonds as a tool
for sustainable development and to address environmental challenges. Some other
initiatives undertaken by Indian government are as follows:
- India's green bond market aligns with COP26 commitments for
net-zero emissions by 2070.
- The government reinforced its Nationally Determined Contribution
(NDC) by committing to reduce emissions intensity by 45% and transitioning to
around 50% of electricity generation from non-fossil fuel sources.
- SEBI introduced ESG-focused mutual funds, fostering
sustainable finance.
- 'Green bonds' offer tax benefits and aid India's goal to
achieve carbon neutrality.
- Innovative environmentally friendly products have emerged
with increased funding.
Sovereign issuers around the globe are primarily driven by
two key objectives: expanding their investor base and boosting the development
of local green or thematic bond markets. The term 'geranium,' denoting the
reduced yield or return that investors are willing to accept for
environmentally friendly bonds, has a noteworthy positive signaling impact.
In this context, the Indian government's green bond issuance
performs admirably. India is leading as a major economy in pursuing growth and
development without heavy reliance on fossil fuels. The goal is to accelerate
efforts to achieve India's 2030 climate targets and work towards achieving
net-zero emissions by 2070.