Explained: India's First-Ever Sovereign Green Bond Auction And How It Helps In Reducing The Carbon Intensity Of The Economy

by Amit Mishra - Jan 25, 2023 03:25 PM +05:30 IST
Explained: India's First-Ever Sovereign Green Bond Auction And How It Helps In Reducing The Carbon Intensity Of The EconomyFinance Minister Nirmala Sitharaman announced the issue sovereign green bonds in the Union Budget 2022-23.
  • These bonds help mobilise funds for projects that primarily focus on environmentally sustainable initiatives, thus helping India meet its climate goals.

The Reserve Bank of India (RBI) is holding its maiden auction of Sovereign Green Bonds (SGrBs) worth Rs 8,000 crore, on Wednesday (25 January).

This is the first of the two auctions, that the RBI will conduct during the current financial year, with the total value of Sovereign Green Bonds being auctioned at Rs 16,000 crore.

Swarajya explains the Sovereign Green Bonds and why they are being issued.

What Is A Green Bond?

A “green bond” is differentiated from a regular bond by its label, which signifies a commitment to exclusively use the funds raised to finance or re-finance “green” projects, assets or business activities.

Like any other bond, a green bond is a fixed-income financial instrument for raising capital from investors through the debt capital market.

Typically, the bond issuer raises a fixed amount of capital from investors over a set period of time (maturity), repaying the capital (principal) when the bond matures and paying an agreed amount of interest (coupons), along the way.

Why Is The Government Of India Issuing These Bonds?

India has committed to reduce the carbon intensity of its economy by 45 per cent, from 2005 level, by 2030, and achieve about 50 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.

The country’s climate actions have so far been largely financed from domestic resources and it is now targeting generation of additional global financial resources, to meet its climate goals.

In keeping with the ambition to significantly reduce the carbon emissions and promote climate resilience, the Union Budget 2022-23 announced the issue of Sovereign Green Bonds.

The issuance of Sovereign Green Bonds, as part of the overall market borrowings, will help the government in tapping the requisite finance from potential investors.

These funds will then be deployed in public sector projects aimed at encouraging energy efficiency in resource utilisation, reducing carbon emissions and greenhouse gases, and improving natural ecosystems and biodiversity, and in turn reduce the carbon intensity of the economy. 

The Sovereign Green Bond Framework

The Department of Economic Affairs, Ministry of Finance issued the Sovereign Green Bond Framework on 9 November 2022, which sets forth the obligations of the government of India as a Green Bond issuer.

The framework applies to all Sovereign Green Bonds issued by the union government and is designed to comply with the International Capital Market Association (ICMA) Green Bond Principles.

Payments of principal and interest on the issuances under this framework are not conditional on the performance of the eligible projects. Investors in bonds issued under this framework do not bear any project related risks.

Salient Features Of Green Bonds Up For Auction Today

The RBI is auctioning two green bonds worth Rs 4,000 crore each, with a tenure of five and 10 years. The two bonds to be auctioned today (25 January) are New GOI SGrB 2028 and New GOI SGrB 2033.

The auction for these bonds are being conducted on the RBI’s Core Banking Solution (E-Kuber) system and the results will be announced today itself.

The central bank will conduct the auction for next tranche of green bonds on 9 February 2023.

Projects Eligible For Financing

The central government will use the proceeds raised from Sovereign Green Bonds (SGrBs) to finance or refinance expenditure (in parts or whole) for green projects falling under ‘Eligible Categories’ (see below).

  • Renewable energy

  • Energy efficiency

  • Clean transportation

  • Climate change adaptation

  • Sustainable water and waste management

  • Pollution prevention and control

  • Green buildings

  • Sustainable management of living natural resources and land use

  • Terrestrial and Aquatic Biodiversity Conservation 

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