Sovereign green bonds

Context: Recently the Central government released the Sovereign Green Bonds Framework. The revenue generated from the issuance of sovereign green bonds will be deployed in public sector projects that help in reducing the carbon intensity of the economy.

About Green Bonds:

• Green bonds are issued by companies, countries and multilateral organisations to exclusively fund projects that have positive environmental or climate benefits and provide investors with fixed income payments.
• The projects can include renewable energy, clean transportation and green buildings, among others.

Examples of Green Bonds:

• The World Bank is a major issuer of green bonds and issued $14.4 billion of green bonds between 2008 and 2020.
• These funds have been used to support 111 projects around the world, largely in renewable energy and efficiency (33%), clean transportation (27%), and agriculture and land use (15%).
• By the end of 2020, 24 national governments had issued Sovereign Green, Social and Sustainability bonds totalling a cumulative $111 billion, according to the London-based Climate Bonds Initiative.

About India’s Sovereign Green Bonds Framework:

• First announced in the Union Budget 2022-23, the proceeds of these green bonds will be issued for mobilising resources for green infrastructure.
• Aim –
• To mobilise Rs 16,000 crore through the issuance of green bonds in the current fiscal ending March 2023.
• Under the framework, the Finance Ministry will, every year, inform the RBI about spending on green projects for which the funds raised through these bonds will be used.

Implementing Agency:

• The Ministry of Finance has constituted a Green Finance Working Committee (GFWC) including members from relevant line ministries and chaired by the Chief Economic Advisor.
• The GFWC will meet at least twice a year to support the Ministry of Finance with selection and evaluation of projects and other work related to the Framework.
• Initial evaluation of the project will be the responsibility of the concerned Ministry/Department in consultation with experts.
• The allocation of the proceeds will be reviewed in a time-bound manner by the GFWC to ensure that the allocation of proceeds is completed within 24 months from the date of issuance.

Eligible Projects:

• All eligible green expenditures will include public expenditure undertaken by the government in the form of investment, subsidies, grants-in-aid, or tax foregone (or a combination of all or some of these) or select operational expenditures.
• R&D expenditures in public sector projects that help in reducing the carbon intensity of the economy and enable country to meet its Sustainable Development Goals (SDGs) are also included in the framework.
• The eligible expenditures will be limited to government expenditures that occurred maximum 12 months prior to issuance of the green bonds.
• Sectors not included –Nuclear power generation, landfill projects, alcohol/weapons/tobacco/gaming/palm oil industries and hydropower plants larger than 25 MW have been excluded from the framework.

Source: Indian Express

Previous Year Question

Q.1) With reference to the India economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)”?  (2022)

1. Government can reduce the coupon rates on its borrowing by way of IIBs.
2. IIGs provide protection to the investors from uncertainty regarding inflation.
3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct?

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2 and 3