Note4Students
From UPSC perspective, the following things are important :
Prelims level: Green Bond;
Mains level: FIIs; Green Bonds; Sovereign Green Bonds Framework (2022);
Why in the News?
On April 5 the Reserve Bank of India (RBI) greenlighted investments in the country’s Sovereign Green Bonds (SGrBs) by Foreign Institutional Investors (FIIS).
- These are the investors such as insurance companies, pension funds, and nation-states’ sovereign wealth funds.
What is the Sovereign Green Bond?
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Why has India allowed FIIs to invest in its Green Bonds?
- For attracting Foreign Investments: By allowing FIIs to invest in green bonds, India attracts foreign capital into its green projects.
- For Widening the Pool of Capital: Allowing FIIs to invest in India’s green projects expands the sources of funding available for the country’s ambitious climate goals, including achieving net zero emissions by 2070 and increasing the share of non-fossil fuel-based energy sources to 50%.
- For Meeting Climate Commitments: Prime Minister Narendra Modi pledged at COP26 in Glasgow in 2021 to reduce India’s carbon emission by 45% and increase the share of renewable energy in the country’s energy mix.
- For Diversification of Investments: FIIs are looking to diversify their portfolios and seek opportunities in green investments due to regulatory support, particularly in developed countries.
- India’s Sovereign Green Bonds Framework (2022), addresses concerns about greenwashing by providing a credible framework for green investments.
Limitation For Govt. of India:
- Limited credibility of projects: The absence of specific regulations for green bonds leaves investors unable to assess the financial risk associated with the projects.
- Higher costs of issuing: The high cost of issuing green bonds in India poses a challenge for the market. Green bonds are initially costly but provide long-term cost savings.
- Greenwashing may not be resolved: Greenwashing, which is the deceptive promotion of a company’s eco-friendly image, is prevalent in the green bond industry. Some bonds are labeled as “green” despite not meeting the specified criteria.
Way Forward:
- Establish Clear Regulations: The government should establish clear and stringent regulations for green bonds, outlining specific criteria for eligible projects.
- Enhance Project Credibility: Implement mechanisms for independent verification and certification of green projects to ensure their credibility.
- Lower Issuance Costs: Explore options to reduce the issuance costs of green bonds, such as providing incentives or subsidies to issuers.
BACK2BASICS:About India’s Sovereign Green Bonds Framework:
How they are issued?
What is the Eligibility for Repurchase Transactions (Repo)?
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Mains PYQ
Q Explain the purpose of the Green Grid Initiative launched at the World Leaders Summit of the COP26 UN Climate Change Conference in Glasgow in November 2021. When was this idea first floated in the International Solar Alliance (ISA)?
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