SOVEREIGN GREEN BONDS (Syllabus: GS Paper 3 - Economy)

Context: India is likely to skip selling sovereign green bonds this fiscal year as investors demand higher yields despite their eco friendly label

• The earlier plans to issue ₹15,000-16,000 crore in green bonds during the second half of FY24 have been put on hold.

Sovereign green bonds

• Green Bonds: These are like any other debt instrument except for the fact that the issuer of the green bond pledges to use its proceeds to finance projects that will have a positive impact on the climate and environment.

• Origin: The first green bond was issued in 2007 by the European Investment Bank, the EU’s lending arm. 

• This was followed a year later by the World Bank. 

• Different from standard bonds: Standard bonds proceeds can be used for various purposes as per the choice of the issuer, whereas proceeds of green bonds are earmarked for green projects or projects that benefit the environment. 

• Issuer: Green bonds can be issued by countries, companies and multilateral organisations to only fund projects that have positive impacts on the climate and environment and provide investors with fixed income payments.

• Green Bonds vs Climate Bonds

• The term ‘labelled’ green bonds refers to bonds marketed by the issuer as ‘green’, where the proceeds are for climate / green assets or projects.

• ‘Climate-themed bonds’ are represented by a broader category of bonds whose proceeds are for climate projects but that are not labelled as green. It is much wider than the ‘labelled green bonds market’.

• Budget 2022-23: The Finance Minister in the Budget 2022 announced that the government proposes to issue sovereign green bonds to mobilise resources for green infrastructure.