SOVEREIGN GREEN BONDS - ECONOMY
News: FinMin clears framework for sovereign green bonds
What's in the news?
● The
government gave nod to the final sovereign green bonds framework in line with
the Budget announcement.
● The issuance of green bonds, which are intended to raise funds for public sector projects to help in reducing carbon intensity of the economy, will be for Rs 16,000 crore in the second half of this financial year.
Key takeaways:
● Finance
Minister Nirmala Sitharaman in her Budget Speech this year announced that the government proposes to issue sovereign
green bonds to mobilize resources for green infrastructure.
● The proceeds will be deployed in public sector projects, which help in reducing the carbon intensity of the economy.
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.
● This
was followed a year later by the World Bank. Since then, many governments and
corporations have entered the market to finance green projects.
● 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,
grant-in-aids, 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.
● Initial
evaluation of the project will be the responsibility of the concerned
Ministry/Department in consultation with experts.
● The
allocation of the proceeds will be reviewed in a time-bound manner by the GFWC
to ensure that the allocation of proceeds is completed within 24 months from
the date of issuance.
● It
will also bring out an annual report on
the allocation of proceeds to the eligible projects along with details of
projects financed, status of implementation, and unallocated proceeds.
● For
every year, GFWC will meet to identify a fresh set of eligible expenditures in
line with the framework in consultation with line Ministries.
● 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,
the framework said.
● This
Green Bond Framework has been reviewed by CICERO, a provider of second opinions
on green bond frameworks.