Why did India allow FIIs to invest in its Green Bonds?

  • On April 5, the Reserve Bank of India (RBI) approved Foreign Institutional Investors’ (FIIS) investments in the country’s Sovereign Green Bonds (SGrBs).
  • Investors include insurance firms, pension funds, and sovereign wealth funds of nations.

Why did India allow FIIs to invest in its Green Bonds?

  • For recruiting foreign investment: Allowing FIIs to engage in green bonds helps India attract international finance to its green projects.
  • Allowing FIIs to participate in India’s green projects broadens the financial sources available to support the country’s ambitious climate targets, such as achieving net zero emissions by 2070 and raising the share of non-fossil fuel-based energy sources to 50%.
  • Meeting Climate Commitments: At COP26 in Glasgow in 2021, Prime Minister Narendra Modi vowed to lower India’s carbon emissions by 45% and enhance the country’s renewable energy mix.
  • FIIs are aiming to diversify their portfolios and seek opportunities in green investments as a result of regulatory assistance, particularly in developed countries.
    • India’s Sovereign Green Bonds platform (2022) tackles concerns about greenwashing by establishing a credible platform for green investment.

Limitation for the Government of India:

  • Projects have limited credibility. The lack of precise laws for green bonds prevents investors from assessing the financial risk connected with the projects.
  • Increased expenses of issuance: The high cost of issuing green bonds in India presents a problem to the market. Green bonds are initially expensive but result in long-term cost reductions.
  • Greenwashing may not be resolved. Greenwashing, or the false promotion of a company’s environmentally good image, is common in the green bond sector. Some bonds are labelled as “green” despite not matching the required standards.

Way Forward:

  • Establish Clear laws: The government should create clear and severe laws for green bonds that outline precise requirements for eligible projects.
  • Improve Project Credibility: Establish methods for independent verification and certification of green initiatives to ensure their credibility.
  • Lower issuing Costs: Look into ways to minimise the issuing costs of green bonds, such as offering incentives or subsidies to issuers.

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