GREEN BONDS - ECONOMY
News: Green
Bonds out Jan 25: What they are, what they mean for investors, environment
What's in the news?
● On
January 6, the Reserve Bank of India (RBI) announced that it will, for the first-time, issue Sovereign Green
Bonds (SgrBs) worth Rs 16,000 crore, in two tranches of Rs 8,000 crore each
in the current financial year.
● The
RBI said it will issue 5-year and
10-year green bonds of Rs 4,000 crore each on January 25 and February 9.
Key takeaways:
● Green
bonds are bonds issued by any sovereign entity, inter-governmental groups or
alliances and corporations with the aim that the proceeds of the bonds are
utilized for projects classified as environmentally
sustainable.
● The
framework for the sovereign green bond was issued by the government on November
9, 2022.
Green bonds:
● It
is a type of fixed-income instrument
that is specifically earmarked to raise
money for climate and environmental projects.
● The
first green bond was issued in 2007 by the European Investment Bank, the EU’s
lending arm.
● These
bonds are typically asset-linked and backed by the issuing entity's balance
sheet, so they usually carry the same credit rating as their issuers’ other
debt obligations.
● They
are designated bonds intended to encourage sustainability and to support
climate-related or other types of special environmental projects.
Projects included under green bonds:
● The
proceeds from the green bonds, which are a part of the scheduled borrowing plan
of the Government, would be used to fund
renewable energy, energy efficiency, clean transportation, water and waste management,
pollution prevention and control and green buildings among others.
● Nuclear
power generation, landfill projects, alcohol/weapons/tobacco/gaming/palm oil
industries and hydropower plants larger than 25 MW have been excluded from the
framework.
● They
also finance the cultivation of environmentally friendly technologies and the
mitigation of climate change.
Funding:
● All
eligible “green expenditures” will include public expenditure by the government
in the form of investment, subsidies, grants-in-aid,
or tax foregone or select operational expenditures, R&D expenditures in
public sector projects that help in reducing the carbon intensity of the
economy.
● Equity
is allowed only in the sole case of metro projects under the ‘Clean
Transportation’ category, the framework said.
Green Finance Working Committee:
● The
Ministry of Finance has constituted a Green Finance Working Committee (GFWC)
including members from relevant line
ministries and chaired by the Chief Economic Advisor.
● The
GFWC will meet at least twice a year
to support the Ministry of Finance with selection and evaluation of projects
and other work related to the Framework.
● The
proceeds will be deposited to the
Consolidated Fund of India (CFI) in line with the regular treasury policy,
and then funds from the CFI will be made available for eligible green projects.