India can sell sovereign green bonds for a second year from April 1 to invest in solar, wind and hydropower and other projects that reduce the impact of carbon emissions.
the government is planning to sell 15,000-16,000 crore green bonds in the second half of the next financial year to fund public sector projects, said two people familiar with the development, requesting anonymity.
The proposed sale follows a similar plan announced late last year. Worth the first tranche of Green Bond Sold for Rs 8,000 crore on January 25, while the second one was auctioned 8,000 crores will be on February 9.
Although the recent budget proposed record market borrowings 15.43 trillion, has not announced the sale of green bonds separately, the people cited above said the bonds may be sold again next year as several financially viable projects in the public sector are in the pipeline and raised through this route. The funds will be easily utilised.
However, the person said the size of the sale in FY24 has not been worked out yet and will depend on the progress of the projects and the utilization of funds raised for green projects in the current fiscal.
An emailed query to the finance ministry spokesperson about the size of the green bond remained unanswered till press time.
Responding to a question on green bonds, Secretary, Department of Economic Affairs, Ajay Seth said, “Issuing sovereign green bonds is not off the table. The decision on whether or not to go for green bonds next year and the amount to be raised through it will be decided when we finalize the borrowing calendar for H2FY24 sometime in September.”
“Now, we have taken care of the pre-requisites and the building blocks and prerequisites for green bonds are in place. We have also done an external evaluation of the Green Bond. And one installment has already been done on January 25, and another is planned for the next week. So, the money that we are going to raise this year, we will use that money in the next financial year before we go to the market for the next round of bonds. When we raise money through green bonds, the commitment is that it is used only for green projects,” the secretary said in an interview.
This year’s (FY23) auction of sovereign green bonds being conducted by the Reserve Bank of India (RBI) comprises the sale of 5-year and 10-year paper with coupons of 7.10% and 7.29%, respectively.
Funds raised by selling green bonds cannot be used for projects related to fossil fuel extraction, production and distribution, or nuclear power. However, they can be used for government investment, subsidies, grant-in-aid, tax exemptions, or sustainable green initiatives aimed at reducing operating expenses and carbon intensity in support of climate mitigation.
Sovereign green bonds are also expected to set a benchmark for private sector fund raising through ESG linked rupee bonds. Successful placement of government bonds will help companies secure funds for their green initiatives at competitive rates.
The central bank has already set up a Permanent Finance Group (in May 2021) to revise the necessary regulatory framework for sustainable financing and climate risk. The government also released the much-awaited Sovereign Green Bond Framework in November. Proceeds from Sovereign Green Bond finance and refinance expenditures for qualified green projects that encourage energy efficiency in resource use, reduce carbon emissions, promote climate resilience and adaptation, and specifically contribute to the Sustainable Development Goals Improves natural ecosystems and biodiversity in accordance with the principles.
Green bonds are expected to strengthen India’s commitment to climate change and Nationally Determined Contributions (NDCs) adopted under the Paris Agreement and help attract global and domestic investment in eligible green projects.
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