Context: Recently, the ₹5,000-crore auction of the new Sovereign Green Bond (SGrB) with 30-year tenure was concluded successfully. It is a notable improvement over the weak response to the Sovereign Green Bonds with 10-year tenure (the investors bid for these bonds at a lower price due to their relatively illiquid nature).
Relevance of the Topic: Prelims: Sovereign Green Bonds
What are Sovereign Green Bonds?
- Sovereign Green Bonds are fixed interest-bearing financial instruments issued by any sovereign entity / inter-governmental organisation /corporation.
- The proceeds of these bonds are used only for environmentally conscious, climate-resilient projects. This includes:
- Investments in solar/wind/biomass/hydropower energy projects (under 25 MW) that integrate energy generation and storage
- Public lighting improvements (E.g., replacement with LEDs)
- Supporting construction of new low-carbon buildings
- Energy-efficiency retrofits to existing buildings
- Projects to reduce electricity grid losses etc.
- The bonds are issued at a premium to facilitate access to cheaper capital for environment-friendly projects.
- There is no cap on foreign investment in these bonds because these instruments are considered as specified securities under the fully accessible route.
- The proceeds will be deposited to the Consolidated Fund of India (CFI) in line with the regular treasury policy, and then funds from the CFI will be made available for eligible green projects.
- There are no specific tax benefits provided for investment in sovereign green bonds.
Note:
- In January 2023, the Reserve Bank of India (RBI) auctioned its maiden sovereign green bonds worth ₹8,000 crore under its Sovereign Green Bond Framework.
- RBI has facilitated wider non-resident participation in the Sovereign Green Bonds by permitting eligible foreign investors in the International Financial Services Centre (IFSC) to invest in such bonds.