Context: The government recently announced its plan to issue sovereign green bonds during the second half of the next fiscal year.

Sovereign Green Bond

• Meaning: Bonds issued by any sovereign entity, inter-governmental groups or alliances and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable.

oThey are financial instruments that finance green projects and provide investors with regular or fixed income payments. – World Bank.

• Announcement: In the Union Budget 2022-23.
• First ever green bond: Issued by the World Bank in 2008.
• 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.

Significance: 

• Importance financial instrument: It has emerged as an important financial instrument to deal with the threats of climate change and related challenges.
• Collaboration: It’s critical to connect environmental projects with capital markets and investors and channel capital towards sustainable development.
• Carbon footprint: It will further reduce the carbon footprint of the country.
• For investors:  A platform to engage in good practices, influencing the business strategy, provides a means to hedge against climate change risks while achieving at least similar, if not better, returns on their investment.