Sovereign Green Bonds
Source: Business Standard
GS III: Economy; Environment
Overview
- News in Brief
- What are Sovereign Green Bonds?
Why in the News?
Commercial banks may find it difficult to show interest in the recently introduced sovereign green bonds in the central government’s borrowing plan for the second half of the current fiscal year.
News in Brief
- Conversely, insurance firms are more inclined to drive demand because of legislative requirements.
- In a notification, the Insurance Regulatory and Development Authority (Irdai) classified purchases of sovereign green bonds as investments in infrastructure.
- According to Irdai, insurance firms are required to invest a minimum of 15% of their life fund AUM in the infrastructure and housing category.
- Insurance companies will buy this as Geen Bonds are qualified for the condition by Irdai.
What is the government plan?
- The central government plans to issue green bonds to raise 20,000 crore as part of its borrowing scheme.
- This offering will consist of 10,000 crores in 30-year green bonds and an additional 5,000 crores in 5- and 10-year bonds, respectively.
- The proceeds from the issuance of green bonds will be used to fund government initiatives aimed at reducing the economy’s carbon impact.
What are Sovereign Green Bonds?
- Companies, nations, and international organizations all offer green bonds.
- It was launched in 2007.
- The bonds guarantee fixed-income payments to investors while only funding initiatives that help the environment or the climate.
- The initiatives might involve, among other things, green buildings, sustainable transportation, and renewable energy.
- These bonds’ earnings are designated for environmental initiatives.
- This is different from regular bonds, which allow the issuer to use the profits for a variety of things.
- There have been cumulative issuances on the global green bond market totalling more than USD 1 trillion.
- According to the London-based Climate Bonds Initiative, by the end of 2020, 24 national governments would have issued sovereign green, social, and sustainability bonds worth a total of USD 111 billion.
Benefits of Sovereign Green Bonds
- In order to reduce the economy’s carbon intensity, environmentally friendly public sector initiatives will be funded with the profits from this instrument.
- Alignment with Climate Goals
- Green Bonds align with a country’s climate goals and commitments, such as those outlined in the Paris Agreement.
- Issuing these bonds demonstrates a government’s commitment to reducing greenhouse gas emissions, mitigating climate change, and transitioning to a low-carbon economy.
- Promotion of Green Innovation
- Sovereign Green Bonds stimulate innovation in green technologies and industries.
- Governments can use the proceeds to support research and development in areas like renewable energy, sustainable agriculture, and clean transportation, fostering economic growth and job creation.
- Encouraging Private Sector Participation
- Sovereign Green Bonds can catalyze private sector investment in green projects.
- As governments demonstrate their commitment to sustainability through bond issuance, private companies may follow suit by investing in similar initiatives.
- Long-Term Economic Benefits
- Investing in green projects can lead to long-term economic benefits, including reduced environmental costs, improved public health, and increased energy efficiency.
- These benefits can have a positive impact on a nation’s economy and well-being.
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