SOVEREIGN GREEN BONDS
WHY IN NEWS ?
- India is likely to skip selling sovereign green bonds this fiscal year as investors demand higher yields despite their eco- friendly label.
WHAT ARE SOVEREIGN GREEN BONDS ?
- Green bonds are 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.
- The framework for the sovereign green bond was issued by the government on November 9, 2022.
- More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, clean water, and sustainable water management.
- They also finance the cultivation of environmentally friendly technologies and the mitigation of climate change.
- Green bonds may come with tax incentives such as tax exemption and tax credits, making them a more attractive investment vs. a comparable taxable bond.
BENEFITS OF GREEN BONDS:
- Over the last few years, Green Bonds have emerged as an important financial instrument to deal with the threats of climate change and related challenges.
- According to the International Finance Corporation (IFC), a World Bank Group’s institution, climate change threatens communities and economies, and it poses risks for agriculture, food, and water supplies.
- A lot of financing is needed to address these challenges.
- It’s critical to connect environmental projects with capital markets and investors and channel capital towards sustainable development – and Green Bonds are a way to make that connection.
- Green Bonds also offer investors a platform to engage in good practices, influencing the business strategy of bond issuers.
- They provide a means to hedge against climate change risks while achieving at least similar, if not better, returns on their investment.
SYLLABUS: PRELIMS, CURRENT AFFAIRS