First-ever Sovereign Green Bonds by RBI

On January 25 and February 9, the RBI will issue Sovereign Green Bonds (SGrBs) in two tranches of 8,000 crores each.

What exactly are Sovereign Green Bonds?

  • A bond is a debt-raising instrument.
  • Since 2007, a market for bonds that are specifically labeled or designated as “green” has emerged.
  • This label distinguishes a green bond from a regular bond by indicating a commitment to use funds raised solely to finance or refinance “green” projects, assets, or business activities.
  • Sovereign green bonds are issued when the sovereign or government guarantees the repayment of the principal and payment of interest on the bonds (SGrB).

How are projects for green bonds chosen?

  • A project is labeled “green” based on four key principles. Encouraging energy efficiency in resource utilization is one of them.
  • lowering carbon emissions and greenhouse gas emissions
  • Promoting climate resilience and improving natural ecosystems and biodiversity, particularly in light of SDG (Sustainable Development Goals).

When will the first sovereign green bond be issued?

  • The Finance Minister announced in her Budget speech earlier this year that sovereign green bonds would be issued to raise funds for green infrastructure.
  • The proceeds will be used to fund public-sector projects that reduce the economy’s carbon footprint.
  • These green bonds would have 5-year and 10-year maturities.

What distinguishes them from traditional government bonds?

  • Government bonds (G-Secs) are typically divided into two types: Treasury Bills and dated or long-term securities.
  • These bonds have coupon rates and can be traded on the stock exchange.
  • One type of dated security is SGrB. It will have a maturity date and an interest rate.
  • The funds raised through SGrB are included in the overall government borrowing.

Who are likely to be the buyers of these bonds? 

  • SGrB is expected to attract both domestic and international investors.
  • However, one theory holds that foreign investors may be hesitant due to currency risk.
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