GREEN MUNICIPAL BOND: ECONOMY

GREEN MUNICIPAL BOND: ECONOMY

NEWS: Ghaziabad Nagar Nigam pioneers sustainable water management through India's first certified Green Municipal Bonds

WHAT’S IN THE NEWS?

Ghaziabad issued India’s first Certified Green Municipal Bond, raising ₹150 crore to fund a Tertiary Sewage Treatment Plant under Swachh Bharat Mission-Urban.
Green Municipal Bonds are debt instruments used by urban local bodies to finance eco-friendly infrastructure like water, sanitation, and waste management.

Ghaziabad’s Certified Green Municipal Bond under Swachh Bharat Mission-Urban

  • Pioneering Move: Ghaziabad became the first Indian city to issue a Certified Green Municipal Bond, marking a landmark moment in urban green financing.
  • Capital Raised: The bond raised ₹150 crore, designated for the development of a Tertiary Sewage Treatment Plant (TSTP)—a crucial step towards urban wastewater management and reuse.
  • Environmental Objective: The plant will enhance water recycling capabilities and reduce environmental degradation, in line with Swachh Bharat Mission-Urban goals.

About Green Municipal Bonds (GMBs)

  • Definition of Municipal Bond:
  • A debt security issued by Urban Local Bodies (ULBs) or municipal corporations to raise funds for infrastructure and public service delivery.
  • Investors receive interest payments and are repaid the principal after a fixed period.
  • What Makes it a Green Bond:
  • A sub-category of municipal bonds where proceeds are earmarked solely for environmentally sustainable and climate-resilient projects.
  • Eligible project areas include renewable energy, clean transportation, water and sewage treatment, waste management, and energy-efficient infrastructure.
  • Constitutional Backing:
  • Article 243W of the Indian Constitution empowers ULBs with responsibilities including water supply, sanitation, solid waste management, and urban planning—legitimizing their role in issuing such bonds.

Significance of Green Municipal Bonds

  • Promotes Sustainable Development:
  • Supports India's commitment to climate goals and sustainable urban growth.
  • Aligns with Environmental, Social, and Governance (ESG) principles increasingly favored by global investors.
  • Access to Low-Cost Capital:
  • Offers long-term and cost-effective financing, typically at lower interest rates than commercial loans.
  • Reduces the financial burden on municipal corporations for large-scale infrastructure development.
  • Broadens the Investor Base:
  • Attracts a diverse range of investors, including institutional investors, ESG-focused funds, and international agencies.
  • Reduces dependence on traditional sources such as state grants and commercial banks.
  • Boosts Urban Infrastructure:
  • Ideal financing tool for critical urban projects like water treatment, sewage management, stormwater systems, and clean energy.
  • Contributes to achieving national goals under AMRUT, Smart Cities Mission, and Swachh Bharat Mission.

Key Challenges in Adoption

  • Limited Municipal Capacity:
  • Many ULBs lack the technical expertise, creditworthiness, and financial planning abilities to independently access bond markets.
  • Regulatory and Market Barriers:
  • Lengthy and complex regulatory approvals, including certification of green credentials.
  • Shallow municipal bond markets in India limit trading and investor confidence.
  • Transparency and Accountability Issues:
  • Difficulty in ensuring proper monitoring, utilization of funds, and assessment of environmental impacts.
  • Lack of standardized reporting frameworks.
  • Low Domestic Awareness:
  • Limited understanding among Indian investors of green finance instruments.
  • Green bonds still viewed as niche products, reducing their uptake.

Way Forward to Strengthen Green Municipal Bonds

  • Capacity Building for ULBs:
  • Implement training programs in financial management, project appraisal, and green certification standards.
  • Support municipalities in improving credit ratings through performance-linked incentives.
  • Policy and Fiscal Incentives:
  • Provide tax incentives, credit risk guarantees, and interest subsidies to make bonds more attractive.
  • Simplify regulatory requirements for issuance and post-issuance compliance.
  • Robust Monitoring and Certification Mechanisms:
  • Mandate third-party certification of environmental claims and periodic impact assessments.
  • Develop a standard national green bond framework for municipal issuers.
  • Enhanced Investor Outreach:
  • Conduct targeted awareness campaigns for pension funds, insurance companies, retail investors, and international development banks.
  • Showcase success stories like Ghaziabad to build trust and market interest.
  • Integration with National Missions:
  • Align green municipal bond projects with Jal Jeevan Mission, AMRUT 2.0, and Smart Cities Mission to leverage existing policy support and funding.
  • Create synergies between urban sustainability goals and financing strategies.

 

Source: https://pib.gov.in/PressReleasePage.aspx?PRID=2125188#:~:text=Under%20the%20Swachh%20Bharat%20Mission,Sewage%20Treatment%20Plant%20(TSTP).