Sovereign Green Bonds
Context:
- Recently, the Finance Minister in the Budget 2022 announced that the government proposes to issue sovereign green bonds to mobilise resources for green infrastructure.
- The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy.
- The announcement is in sync with India’s commitment to achieving net-zero carbon emissions by 2070.
About:
- 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.
- Proceeds from these bonds are earmarked for green projects. This is unlike standard bonds, the proceeds of which can be utilised for various purposes at the discretion of the issuer.
- The international green bond market has seen cumulative issuance worth more than USD 1 trillion since market inception in 2007.
- By the end of 2020, 24 national governments had issued Sovereign Green, Social and Sustainability bonds totalling a cumulative USD 111 billion dollars, according to the London-based Climate Bonds Initiative.
Significance:
- Sovereign green issuance sends a powerful signal of intent around climate action and sustainable development to governments and regulators.
- It will catalyze domestic market development and provides impetus to institutional investors.
- It will provide benchmark pricing, liquidity and a demonstration effect for local issuers, helping to support the growth of a local market.
- With the IEA’s World Energy Outlook 2021, estimating that 70% of the additional USD 4 trillion spending to reach net-zero is required in emerging/developing economies, sovereign issuance can help kickstart these large inflows of capital.
Source: THE HINDU.
