InvestorQ : Can you tell me what are the sovereign green bonds that the government plans to issue and what will they do with the funds?
Rashi Mehra made post

Can you tell me what are the sovereign green bonds that the government plans to issue and what will they do with the funds?

Archita Jajjoo answered.
2 weeks ago

The Sovereign Green Bonds framework has been approved by the Finance Ministry. It is likely to help India reduce its carbon footprint in a big way. As part of its second half of FY23 borrowing program, the government had included Rs16,000 crore issue of Sovereign Green Bonds, even as it had reduced the overall borrowing size by Rs10,000 crore. Being sovereign bonds, they will be issued in the name of the government and the funds will be for PSU sponsored green projects. These green bonds will enable PSU companies to raise funds at fairly lower cost because of the low carbon footprint.

According to the government, it would give such funds to PSUs and other government owned companies to finance projects in areas like renewable energy, energy efficiency, clean and green transportation, water and waste management, pollution prevention, green buildings etc. The green bonds normally carry a lower rate of interest due to the low carbon stamp and that will allow the companies to raise funds at relatively lower cost. The government backing is likely to make much more attractive to potential investors in the project and also in the green bonds and thus create a much wider market.

When it comes to green bonds, the government will participate in green projects in a number of ways. It will directly raise funds for such green projects, provide a sovereign guarantee to reduce the cost of funds, it can participate through investments or even by either granting of subsidies offering tax concessions. Other methods of the government participating in the project include exemptions offered on tax and other levies, sharing of operational expenditures of the project in question, R&D expenditures subsidies in public sector projects etc. The focus will only be on projects that reduce carbon intensity.

The green projects will be predominantly funded by debt with equity permitted only in the case of metro projects under the “Clean Transportation” category. Other projects have to be by way of debt only. The Finance Ministry has also set up a Green Finance Working Committee (GFWC), which will meet at least twice a year to support and monitory and also ideate on such projects. Funds raised by the government via Sovereign Green Bonds will be deposited into the Consolidated Fund of India (CFI) as is the standard practice. Appropriate funds from the CFI will be made available only for approved and eligible green projects.