Introduction
In the 2022 annual budget, our Finance Minister announced that the government proposes to issue sovereign green bonds with the aim of deploying resources for green infrastructure. The proceeds will be deployed in public sector projects to help reduce the economy’s carbon intensity. Our Finance Minister, Ms. Nirmala Sitharaman, approved the final sovereign green bonds framework for India on November 9th in order to boost India’s efforts towards energy transition. The announcement is in sync with India’s commitment to achieving net-zero carbon emissions by 2070.
History of Green Bonds
While the Indian government is all set to launch its own Sovereign Green Bonds for the very first time, it’s not a new concept. The first-ever Green Bond was issued by the World Bank in 2008, and ever since its issuance, the Green Bond Market saw an overwhelming spike. The total issuance size was worth USD 116 Billion in the first quarter of 2022. Since then, Green bonds have continued to be the most popular bonds among all the other bonds.
What are Green Bonds?
Green bonds are issued by companies, countries, and multilateral organizations to exclusively fund projects that have a positive environmental or climate benefit and provide investors with fixed-income payments. Through green bonds, investors can make fixed-income investments, which will be used by the issuer for specific environmental or climate change projects like renewable energy, pollution prevention, energy control, etc. The global green bond market is already valued at $ 433 Billion, which is anticipated to grow rapidly, with governments in 18 countries issuing such bonds. India will soon have its own government-issued sovereign green bonds, and the credit rating of these green bonds is also expected to be similar to India’s sovereign bonds.
How will Sovereign Green Bonds benefit the Indian economy?
The amount raised from the sovereign green bonds will be used in environment-focused public sector projects, which will, in turn, help decrease the economy’s carbon intensity. These green bonds will also help to attain set targets decided by the government, for instance, achieving 175 gigawatts of renewable energy capacity by the year 2022 and net zero carbon emissions by 2070. Such bonds will allow institutional investors and retail investors to participate in such green projects, which will be funded by the proceeds of Sovereign Green Bonds.
How will SGrB benefit investors?
Like regular bonds, investors of Sovereign Green Bonds will also receive periodic interest payments along with the principal returned on maturity. As per the Framework issued by the regulator, such bonds are also expected to offer certain tax benefits to their investors, like tax credits and tax exemptions. So, apart from the safety of investments, the Sovereign Green Bond’s investors may be able to enjoy additional tax benefits too.
Who should invest in SGrB?
The issuance and regulation of SGrB will be conducted transparently. Information such as where the proceeds will be invested or the viability of the green project will be disclosed from time to time.
Investors looking for expected benefits like a fixed source of income, tax benefits, and a love for the green and carbon-neutral economy can consider investing in Sovereign Green Bonds. Also, it is recommended that investors must consider their risk appetite, time horizon, and asset allocation before investing in any investment avenues.
Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.
