An imaginative initiative?

As announced earlier, the Reserve Bank of India (RBI) issued sovereign green bonds (SGrBs) for the first time on January 25. The value of the issued bond is Rs 8,000 crore — which is the first tranche of the overall Rs 16,000 crore allotted for the current financial year. The second tranche will be issued on February 9. In the first tranche, two categories of green bonds have been issued — 57 ten-year bonds worth Rs 3,949 crore and 32 five-year bonds worth Rs 3,993 crore. With the issuance of sovereign green bonds, India has joined the elite club of nations that have sold USD 1 billion in securities in this sector. London-based Climate Bonds Initiative reported that by the end of 2020, 24 national governments had issued Sovereign Green Bond, Social and Sustainability bonds. The groundwork for the green bonds was laid by the Union Finance Minister in the Union Budget 2022-23 wherein she made an announcement related to the issuance of sovereign green bonds. Furthermore, in November last year, the government came out with a framework for sovereign green bonds, based on the principles enlisted by the International Capital Market Association. In the framework, the government proposed that the proceeds from the bond will be used to encourage energy efficiency, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation, and improve natural ecosystems and biodiversity. It may be noted that projects such as fossil fuels, nuclear power generation, and direct waste incineration were excluded from the eligibility for investments. In addition, the government had also instituted a Green Finance Working Committee, chaired by the chief economic adviser, which was tasked with the evaluation exercise. The issuance of green bonds is an important landmark in the history of climate finance in India. Unlike other types of bonds, green bonds not just encapsulate the spirit of mutual benefit of the investors and the issuer, but also seek to address the pertinent cause of tackling climate change. Green bonds, basically, are financial instruments issued by any sovereign entity, inter-governmental groups or alliances and corporations with the aim that the proceeds of the bonds will be utilised for environmentally sustainable projects. Owing to its enormous consequences, climate change has emerged as a mammoth problem for the entire world. Global leaders are mulling over the question of how to ensure the facilitation of funds for tackling climate-related challenges. The expenses to be incurred are paramount. Against this background, the promising initiative of green bonds is indeed a step in a good direction, though it is still in a formative phase. The green bonds framework in India has been rated as ‘Medium Green’ by a Norway-based independent research firm. The ‘Medium Green’ rating means that it still has a lot of ground to cover. It may be pertinent to note here that in the current bidding for green bonds, most of the investment has come through public sector banks. Initial reports suggest that the proportion of foreign investors has been quite low as of now. The coupon for a five-year bond has been 7.1 per cent and that for a 10-year bond has been 7.29 per cent. The coupon is basically the interest that the investors get as bondholders. Notably, the bond yields have been 5-6 basis points lower than comparable government securities. Certainly, the issuance of green bonds by the RBI is a nascent phenomenon and there is a lot of scope for improvement. There is a need to make such exercises attractive for foreign investors as also for a more diversified domestic investor base. These limitations, however, cannot be used to denounce the significance of the green bond scheme. Green bonds need to be seen in a composite manner. It will, over time, complement other environment-friendly policies like the National Green Hydrogen Mission. The sovereign green bonds scheme is yet another addition to India’s tool base to combat environmental depredation. It is marked by an economically viable collective spirit.