Budget 2022: What Are Sovereign Green Bonds & How It Will Promote Environmental Goals

Green bonds are issued by any sovereign entity, inter-governmental groups and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable

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New Delhi: Giving a push to the government's borrowing programme in 2022-23, finance minister Nirmala Sitharaman on Tuesday proposed to issue sovereign green bonds to mobilise resources in the Budget.

"Sovereign 'green bonds' will be issued for mobilising resources for green infrastructure,” said the FM. The government push to green bonds comes at a time with green finance becoming a priority for public policy.

Green finance refers to the financial arrangements that are specific to the use for projects that are environmentally sustainable or projects that adopt the aspects of climate change.

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What Are Green Bonds?

Green bonds are the bonds issued by any sovereign entity, inter-governmental groups or alliances, and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable.

Environmentally sustainable projects include the production of energy from renewable sources like solar, wind, biogas, etc.; clean transportation that involves lower greenhouse gas emission; energy-efficient projects like green building; waste management that includes recycling, efficient disposal, and conversion to energy, etc.

Categorised under debt instruments, green bonds differ from conventional fixed-income securities in one aspect that the issuer pledges to use the proceeds to finance projects meant for positive environmental or climate effects. This will also help in reducing the carbon intensity of the economy.

Since its debut in 2007, the green bond market has been growing steadfastly. 

Moreover, projects defined as sustainable under the disclosure requirement for Green Debt Securities include climate change adaptation, sustainable waste and water management, sustainable land use including sustainable forestry and agriculture, and biodiversity conservation. In order to meet the financial needs for these types of projects, new financial instruments such as green bonds are being established.

How Are Green Bonds Issued In Europe

Recently, Germany and Denmark have issued green bonds as twin bonds. The green bond is essentially attained the similar characteristic of a running bond of the central government.

The German government has first issued a 10-year Green Federal bond worth 6.5 billion euros in September 2020 followed by a 5-year Green (5 billion euros), according to Reuters.

Similarly, Denmark adopted a similar strategy and issued its first 10-year green bond in December 2021 also at zero percent.

What Is The Government Initiative So Far? 

In 2017, the Securities and Exchange Board of India (SEBI) acknowledged the need for green bonds and issued a circular prescribing disclosure requirement for issuance and listing of 'green debt securities.'

The move is seen as a major boost especially with the country making aggressive strides towards a low-carbon economy with ambitious targets like achieving a robust 175 gigawatt of renewable energy capacity by 2022.