Government announces Framework for issuance of Sovereign Green Bonds

Tags: Environment Economy/Finance

The Central government has issued a framework for its proposed Sovereign Green Bonds .Nirmala Sithraman in her budget speech had proposed the issuance of Sovereign Green Bond in the 2022-23 financial year. The government said later it proposes to issue Rs 16,000 crore worth of bonds in the second half of the current financial year.

What is a Sovereign Green Bond? 

Sovereign means Government of India. Bond means that it is a debt instrument which is issued to raise capital or fund and it creates debt on the issuer. Here Green means that the fund raised from the sale of the bonds will be used for environment friendly projects. 

Main features of the Sovereign Green Bond 

Committee to select eligible project

The government will set up a ‘Green Finance Working Committee' headed by the Chief Economic Advisor Dr V. Anantha Nageswaran. The committee will select eligible projects for financing.

The committee will meet at least twice a year and will include members from relevant ministries, the Ministry of Environment, Forests and Climate Change, NITI Aayog, and the Budget Division of the finance ministry's Department of Economics and others.

Projects to be financed 

The projects eligible to be financed or re-financed by the proceeds of Green Bond issuances fall under the following nine categories:  

• 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, and terrestrial and aquatic biodiversity conservation.

Projects which are not eligible 

• The funds raised through the green bonds, however, won’t be used to finance hydropower plants that are larger than 25 MW, 
• nuclear projects and 
• Any biomass-based power generation with biomass originating from protected areas.

Which type of government spending will qualify for the Green sovereign bonds?

Spending that will qualify for the green financing includes government expenditure in the form of investment, subsidies, grant-in-aids, or tax foregone or select operational spending and R&D expenditures in public-sector projects for reducing the carbon intensity of the economy. Investment in equity, by using the green bond proceeds, is allowed only in case of metro projects.

Expenditures directly related to fossil fuel won’t qualify for green financing. However investment or spending aimed at a relatively cleaner Compressed Natural Gas (CNG) is allowed if it’s used in public transportation projects only.

The Framework has been rated Medium Green 

According to the Finance Ministry the framework has been termed “medium green” by CICERO. 

CICERO is a leading global independent reviewer of green bond investment architecture. 

This is the best grade after “dark green”, assigned by CICERO for a green bond that aligns with a low-carbon climate resilient future.

Points to remember 

First Green bond in the world was issued by the European Investment Bank in 2007.

The World Bank issued green bonds for the first time in 2008.

India’s first green bond was issued by Yes Bank in 2015.