Any financial institution or Government, whether public or private, collects finance and issues bonds as a security for the environmental project, such bonds are termed Green bonds. Green bonds are direct investments in green projects with the purpose to support projects that provide sustainability in the environment. Green bonds are also termed thematic bonds.
The government used the capital collected by issuing bonds in the public sector. It is utilised for projects like renewable energy, agriculture, sustainable energy, waste management, water management, marine ecosystem and electric vehicles. Bonds are generated for specific green projects and are only used for the cited project as disclosed to investors.
Government bonds in India are a type of bond issued for 5 to 40 years. Government bonds in India is a type of government security. Government bonds in India are released by both state and central government and it is considered a loan to the country or state. Government bonds India is considered as the long-term bond raised by the government.
Green Bonds in India
Green bonds were first issued by the World Bank in 2007 and after that many institutions or governments issued green bonds to meet sustainable development.
The government of India issues sovereign green bonds for a specific period and they use all collected funds only for climatic or environmental support. However, government green bonds are issued with the promise of interest at the time of maturity of the bonds.
The green bonds market saw considerable growth in the year 2014 with the issuance of green bonds. As per the data released by the climate bonds initiative, it said the total issuances of green bonds surpassed $2.0 trillion in September 2022. In the year 2022, Green bond issuance in the international capital markets reached $443.72 billion.
Finance Minister Nirmala Sitharaman announced in the Union Budget of 2023-24 about the issuing of green bonds. To build and promote the green infrastructure around the country, the bonds issued by the government.
Since 2014, the Indian private sector started issuing green bonds for sustainable development and collected $43 billion and since then the green bonds is scaling up. The Government of India for the first time entered into green bonds and declared to issue sovereign green bonds.
80 billion rupees of sovereign green bonds were announced on 25th January 2023 for a period of 5 and 10 years. Another batch of sovereign green bonds was announced on 9th February 2023 of 80 billion rupees for a period of 5 and 10 years.
By issuing green bonds government provides the special benefits to green bonds holder. Green Bondholders have the benefit of exemption from tax by investing in the green bond market. Large-scale and medium-scale businesses contribute the most by holding the majority of green bonds as a part of their Scale Green responsibility and as a contribution to society.
The sovereign green bonds issued by the Government of India have interest rates just like other bonds or investments. The interest rate for 5-year green bonds is set at 7.10% and it is set at 7.29% for the 10-year. The premium points of a sovereign green bond for 10 years is 10 basis points and for 5-year it is 9 basis points.
The Reserve Bank of India, in April 2023,issued the guidelines and green bond framework regarding green bond issuance. The main categories in which green bonds can be issued are renewable energy, energy efficiency, pollution-free transportation, clean water and waste management, green infrastructure, living and use of land and ecosystem.
Varieties of Green Bonds?
1) Use of proceeds bond
This type of green bond is the most issued bond by any institution or government and the fund collected is used for a specific climatic project. It can be used for renewable energy, agriculture projects, energy projects and many more.
2) Green use of proceeds revenue bond
Revenue bonds are issued by the Government or any public financial institution for any specific climate-friendly project. Interest on such bonds is received from earnings through the project.
3) Green project bond
Green project bonds are issued only for a large single environment project which has a lasting positive effect on the environment.
4) Green securitised bond
Securitised bonds are an indirect investment towards the environment. Through underlying asset cash flow is generated and used for environmental sustainability.
5) Climate bond
Climate bonds are issued only for projects that are climate-friendly. Any project with the purpose of climate change in such a climate bond is used. Such as carbon storage, climate infrastructure and many more.
Top 5 Green Bond issuer of India:
- Greenko
- Renew
- Continuum
- NHPC
- Adani Green
Process of evaluation and selection of Green project
1) Establishing Committee: A green finance working committee has been established by the government to be in charge of and evaluation and selection of the project submitted to the ministry. A green finance committee is chaired by the Economic Adviser, Minister of Environment, Forest and Climate Change, NITI Ayog and Minister of Finance.
2) Management and Funds: Once received from the Ministry and after the complete evaluation and selection of the project the funds will be deposited into the Consolidated Fund of India and it is handled by the Public Debt Management Cell. The collected funds then will be used in the eligible green project.
3) Constant update: Once invested in any project the Government of India will maintain complete transparency and provide complete details about the project.
Epilogue
As of February 2023, India leads Asia in issuing green bonds of $21 billion. The private sector has a major contribution in it with 84%. Green bond issuance can change into a positive climate and sustainable development in the country.
Through government bonds india, the government expects to cut its emission to zero by 2070. Green bond development has started to peak up with government sovereign bonds entering into the market this year.
Frequently Asked Questions
1) Who announced its first-ever sovereign green bonds in January?
The Indian government announced its first-ever sovereign green bonds on 25th January 2023.
2) Which institution has the right to provide green bonds?
Financial authorities and Government has the right to provide green bonds.
3) Why issuing green bonds necessary?
By issuing green bonds the country invests in climate and environment-related projects and achieves sustainable development in the country.
4) What is the investment period for green bonds?
The investment period is of 5 and 10 years.
5) How does a green bond benefit its holders?
Green bondholders can get a benefit of an exemption in tax.
