The Reserve Bank of India (RBI) stated that the Indian government’s sovereign green bonds will not be subject to any restrictions on foreign investment.
What exactly are Sovereign Green Bonds?
- A bond is a debt-raising instrument.
- Since 2007, a market for bonds labelled 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 principal and payment of interest on the bonds (SGrB).
How are projects for green bonds chosen?
- A project is labelled “green” based on four key principles. Encourage energy efficiency in resource utilisation 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 the most likely 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.
Source: https://economictimes.indiatimes.com/news/economy/policy/reserve-bank-of-india-says-no-foreign-investment-cap-on-sovereign-green-bonds/articleshow/97255666.cms