RBI to issue ‘Sovereign Green Bonds’ for green projects to reduce carbon intensity

As part of its overall market borrowings, the Government of India is likely to kick off its first-ever issuance of Sovereign Green Bonds today (January 25, 2023) for mobilising resources for green infrastructure. The next tranche of the Sovereign Green Bonds will be issued on February 9, 2023. As announced in the Union Budget 2022-23, the proceeds will be deployed in public sector projects that help reduce the economy’s carbon intensity.

Attracting global & domestic investments

In the month of November, 2-22, Union Minister for Finance & Corporate Affairs Nirmala Sitharaman had approved the final Sovereign Green Bonds framework of India, which is expected to strengthen India’s commitment towards its Nationally Determined Contribution (NDCs) targets, adopted under the Paris Agreement and help in attracting global and domestic investments in eligible green projects. The proceeds generated from issuance of such bonds will be deployed in public sector projects.

Panchamrit of PM Modi

Earlier, Sovereign Green Bonds were notified in the half-yearly issuance calendar for marketable dated securities for the second half of the fiscal year 2022-23 on September 29, 2022 that Sovereign Green Bonds for an aggregate amount of Rs 16,000 crore would be issued. Government of India has since issued the Sovereign Green Bond Framework on November 09, 2022. The framework comes close on the footsteps of India’s commitments under ‘Panchamrit’ as elucidated by the Prime Minister Narendra Modi at COP26 at Glasgow in November, 2021.

Bonds for Rs. 16,000 to be issued

The Government of India in consultation with the Reserve Bank of India (RBI), has decided to notify the indicative calendar for issuance of Sovereign Green Bonds (SGrBs) for the fiscal year 2022-23. The issuance calendar suggests on January 25, 2023, 5 year and 10 year SGrBs would for Rs. 4000 crore each. It would be altogether of Rs. 8000. Similarly, on February 9, 2023, 5 year and 10 year SGrBs would be for Rs. 4000 crore each.

Issued through Uniform Price Auction

Sovereign Green Bonds would be issued through Uniform Price Auction. 5% of the notified amount of sale will be reserved for retail investors as specified under the ‘Scheme for Non-competitive Bidding Facility in the Auctions of Government of India Dated Securities and Treasury Bills’.

Eligibility for Repurchase Transactions

Eligibility for Repurchase Transactions (Repo) has been defined. SGrBs will be eligible for Repurchase Transactions as per the terms and conditions mentioned in Repurchase Transactions (Repo) Reserve Bank directions, 2018 as amended from time to time. SGrBs will be reckoned as eligible investment for SLR purpose.

Bonds to be designated as specified securities

SGrBs will be eligible for ‘When Issued’ trading in accordance with the guidelines on ‘Transactions in the When Issued market in Central Government Securities’ issued by the Reserve Bank of India and SGrBs will be eligible for trading in the secondary market. Sovereign Green Bonds will be designated as specified securities under the ‘Fully Accessible Route’ for investment in Government Securities by non-residents.

India’s vision to achieve net zero emissions

The issuance of Sovereign Green Bonds is in consonance with India’s vision to achieve net zero emissions by 2070, which has been carefully considered after taking into account the principles of United Nations Framework Convention on Climate Change (UNFCCC) in the light of national circumstances.

Long Term Low-Carbon Development Strategy

According to latest estimates in India’s Long Term Low-Carbon Development Strategy (LT-LEDS), it is envisaged that a transition to a low-carbon development pathway will entail costs, pertaining to the deployment of new technologies, development of new infrastructure and other transaction costs. India’s financial needs in this regard focus on the energy sector, including industry, buildings, and transport. Estimates vary across studies due to differences in assumptions, coverage, and modelling approaches, but fall in the range of trillions of dollars by 2050. The Government of India has already taken a number of measures including the announcements in the Union Budget 2022-23.

Blended finance for climate action

Sovereign green bonds and thematic funds for blended finance in areas including climate action were announced in the Union Budget 2022-23. The budget pushes energy transition by encouraging domestic production of solar power equipment and batteries in line with India’s climate commitments.

Production Linked Incentive Scheme approved

The Centre has also approved the Production Linked Incentive Scheme (Tranche II) on ‘National programme on High Efficiency Solar PV Modules’, with an outlay of Rs. 19,500 crores for achieving manufacturing capacity of Giga Watt (GW) scale in High Efficiency Solar PV Modules. As per the Securities Exchange Board of India (SEBI), green debt securities are created to fund projects that have positive environmental and climate benefits.

Green debt security

The SEBI regulations define green debt security as a debt security issued for raising funds that are to be utilised for projects and assets falling under categories like renewable and sustainable energy including wind, solar, bioenergy, other sources of energy which use clean technology, clean transportation including mass or public transportation, sustainable water management including clean and drinking water, water recycling, climate change adaptation, energy efficiency including efficient and green buildings, sustainable waste management including recycling, waste to energy, efficient disposal of wastage, sustainable land use including sustainable forestry and agriculture, afforestation, biodiversity conservation.

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