What are Sovereign Green Bonds (SGrBs)?सॉवरेन ग्रीन बॉन्ड्स (SGrBs)

Why in News? India’s initiative to finance green projects through Sovereign Green Bonds (SGrBs) is reportedly facing low investor demand. This has restricted the Union government’s ability to achieve a “greenium” (a green premium characterized by lower yields on green bonds compared to conventional bonds). The muted response highlights the challenges in raising cost-effective green financing through the debt market.

What are Sovereign Green Bonds (SGrBs)?

Sovereign Green Bonds are debt instruments issued by the government to finance environmentally sustainable projects. These projects align with green objectives such as renewable energy, clean transportation, climate-resilient infrastructure, and pollution control.

Key Features of SGrBs:

1. Purpose:
   To fund government projects that contribute to environmental sustainability and climate goals.

2. Framework:
   India’s SGrBs follow a Green Bond Framework, which outlines:

   • Eligible green projects (e.g., solar energy, wind power, water management).
   • Exclusions (e.g., large-scale hydropower projects, nuclear power).

3. Issuance:

   • First issued in FY 2022-23, with an issuance target of ₹16,000 crore.
   • Managed by the Reserve Bank of India (RBI) on behalf of the government.

4. Alignment with Global Standards:

   • Green Bond Principles (GBP) of the International Capital Market Association (ICMA).

5. Greenium:

   • Expected lower yields than traditional bonds due to investor preference for green investments.

Challenges Faced by SGrBs:

1. Muted Investor Demand:
   Institutional investors have shown limited enthusiasm, impacting the potential to secure lower yields.

2. Lack of Domestic Awareness:
   Green finance is a nascent concept in India, and domestic investors often prioritize returns over environmental benefits.

3. Verification and Credibility Issues:
   Concerns over “greenwashing” (misuse of funds for non-green purposes) may deter investors.

4. Higher Benchmark Yields:
   India’s conventional bonds already offer competitive yields, making the green premium less attractive.

Significance of SGrBs:

• Climate Commitments:
  Supports India’s Net Zero by 2070 target and helps mobilize resources for climate-resilient development.

• Diversification:
  Opens avenues for financing green projects without solely relying on budgetary allocations.

• Market Development:
  Encourages the growth of a green finance ecosystem in India.

Way Forward:

1. Incentives for Investors:

   • Tax benefits or credit enhancements to attract buyers.

2. Increased Transparency:

   • Strengthen mechanisms for verifying green project impacts to boost investor confidence.

3. Capacity Building:

   • Promote awareness about green bonds among domestic investors and institutions.

4. Global Collaboration:

   • Leverage international expertise to enhance the market appeal of SGrBs.

By addressing these challenges, India can better align its green financing efforts with its climate and development goals.