GS Paper 3:
Topics Covered: Conservation related issues.
Context:
India will issue at least Rs 24,000 crore ($3.3 billion) in sovereign green bonds as the country marks a shift towards a low-carbon economy.
Need for:
India’s maiden foray into the green bond space comes as it plans to fund renewable energy projects that will help meet its goal of net-zero emissions by 2070.
- The planned issuance comes amid a global boom in sustainable investments.
- India is the world’s third-biggest emitter of greenhouse gases and plans to more than quadruple its renewable power generation capacity by 2030.
What Is a Green Bond?
A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects.
These bonds are typically asset-linked and backed by the issuing entity’s balance sheet, so they usually carry the same credit rating as their issuers’ other debt obligations.
- Green bonds may come with tax incentives to enhance their attractiveness to investors.
- The World Bank is a major issuer of green bonds. It has issued 164 such bonds since 2008, worth a combined $14.4 billion. In 2020, the total issuance of green bonds was worth almost $270 billion, according to the Climate Bond Initiative.
How Does a Green Bond Work?
Green bonds work just like any other corporate or government bond.
- Borrowers issue these securities in order to secure financing for projects that will have a positive environmental impact, such as ecosystem restoration or reducing pollution.
- Investors who purchase these bonds can expect to make as the bond matures.
- In addition, there are often tax benefits for investing in green bonds.
What is the Significance of Sovereign Guarantee to Green Bonds?
- Sovereign green issuance sends a powerful signal of intent around climate action and sustainable development to governments and regulators.
- It will catalyze domestic market development and provides impetus to institutional investors.
- It will provide benchmark pricing, liquidity and a demonstration effect for local issuers, helping to support the growth of a local market.
Green Bonds Vs Blue Bonds:
Blue bonds are sustainability bonds to finance projects that protect the ocean and related ecosystems.
- This can include projects to support sustainable fisheries, protection of coral reefs and other fragile ecosystems, or reducing pollution and acidification.
- All blue bonds are green bonds, but not all green bonds are blue bonds.
Green Bonds Vs Climate Bonds:
“Green bonds” and “climate bonds” are sometimes used interchangeably, but some authorities use the latter term specifically for projects focusing on reducing carbon emissions or alleviating the effects of climate change.
Insta Curious:
Yes Bank was the first Indian Bank to issue Green Infrastructure Bonds (GIBs) in India. It had issued India’s first-ever GIBs worth 1,000 crore rupees in 2015.
InstaLinks:
Prelims Link:
- About Green Bonds.
- How do they operate?
- Features.
- How are they different from Blue Bonds.
Mains Link:
Discuss the significance of Green Bonds.
Sources: PIB.
