Sovereign Green Bonds Framework

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Sovereign Green Bonds Framework

News Highlight

Union Finance Minister Nirmala Sitharaman has approved India’s final Sovereign Green Bonds Framework.

Key Takeaway

A statement from the finance ministry said this approval would further strengthen India’s commitment towards its Nationally Determined Contribution (NDCs) targets, adopted under the Paris Agreement, and help attract global and domestic investments in eligible green projects.

Sovereign Green Bonds

  • What?
  • Green bonds are financial instruments that generate proceeds for investment in environmentally sustainable and climate-suitable projects. 
  • The green bond is sometimes used interchangeably with “climate bonds” or “sustainable bonds.”
  • Features
  • These are rupee-denominated papers and will have a long tenure to suit the requirement of green infrastructure projects.
  • Significance
  • The proceeds will be deployed in public sector projects, which help reduce the economy’s carbon intensity. 
  • It would fund renewable energy, energy efficiency, clean transportation, water and waste management, pollution prevention and control, and green buildings.
  • Targets
  • The Indian Government announced at the Union Budget 2022-23 that it would issue its maiden sovereign green bonds in the current financial year.
  • The government intends to mobilise Rs 16,000 crore from the issuance of green bonds.
  • Exceptions
  • Nuclear power generation, landfill projects, alcohol/ weapons/ tobacco/ gaming/ palm oil industries and hydropower plants more significant than 25 MW have been excluded from the framework. 
  • Green Finance Working Committee (GFWC)
  • The Ministry has constituted a Green Finance Working Committee (GFWC) with representation from relevant Ministries and chaired by Chief Economic Adviser.
  • The committee will meet at least twice a year to support the Ministry of Finance with the selection and evaluation of projects. 
  • It has members from relevant line ministries, the Ministry of Environment, Forests and Climate Change, NITI Aayog, and the Budget Division of the finance ministry’s Department of Economics.

Sovereign Green Bonds Framework

  • About
  • The Indian Government released the Green Bonds Framework in November,2022.
  • The Framework comes close in the footsteps of India’s commitments under “Panchamrit”, as elucidated by the Prime Minister at the Conference of Parties (COP) 26 at Glasgow in 2021.
  • “Panchamrit”
  • The Union Cabinet recently approved an update to India’s Nationally Determined Contribution (NDC).
  • These are called five commitments or Panchamrit; they are
  • Increase the non-­fossil energy capacity to 500 GW (gigawatts) by 2030.
  • Meet 50% of India’s energy requirements from “renewable energy” by 2030.
  • Reduce the projected carbon emissions by one billion tonnes from now until 2030.
  • Reduce the carbon intensity of its economy by more than 45%.
  • Achieve the target of “net zero” by the year 2070.
  • Features
  • As per this framework, the principal and interest payments on the Green Bonds will not rely on the eligible projects’ performance. Therefore, the investors will not be adversely affected by any project-related risks.
  • The eligible expenditures are limited to government expenditures that occurred within 12 months before the bond issuance. All of the proceedings for the bond will be allocated to projects within 24 months after the allocation.
  • While the Union Ministry of Finance has the right to make any changes in the Green Bonds Framework, an independent organisation will review the modifications made.

Content Source: The Hindu

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1. The Green Finance Working Committee is chaired by the Chief Economic Adviser.
2. The Sovereign Green Bonds would fund renewable energy, energy efficiency, and clean transportation.

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