Government of India will issue first Sovereign Green Bonds in two tranches amounting to $1.94 billion. The proceeds of the Sovereign will be used to fund green infrastructure projects to reduce carbon emissions within the economy. The green bonds will be of 5 year and 10-year maturity and traded in the secondary market. The sovereign green bonds are eligible for Statutory Liquidity Ratio (SLR) and Repurchase Agreements (repo). SLR are the minimum percentage of deposits that a bank has to maintain in the form of cash, treasuries and other assets. SLR is a key policy tool used by Reserve Bank of India to drive credit within the economy, and its inclusion bolsters demand among banks. The retail inflation in India has reduced to less than 6 percent, driving down the cost of funding and enhancing innovative ways in raising capital for long term infrastructure projects. Issuance of Sovereign Green Bonds is one such step. India released a framework for sovereign green bonds in November last year, joining a select few countries worldwide who have framed Sovereign Green Bond framework.
In 2021 India’s Honorable Prime Minister announced reduction of the carbon intensity of the economy by 45 per cent by 2030, over 2005 level an upwards revision over the Nationally Determined Contribution goal set under the Paris agreement in 2015. The target to achieve 50 percent of its energy requirements from renewable energy by 2030 is noteworthy and capital intensive. Other key goals include net zero emissions by 2070, reduce total projected carbon emissions by one billion tonnes from the date of announcement till 2030 and reach 500GW non-fossil energy capacity by 2030.
Nishant Malhotra’s webinar on Emerging Trends in Sustainable Finance with Atal Innovation Mission, Niti Aayog, Government of India’s leading think tank here.
According to Climate Bonds Initiative (CBI), $482.4 billion of green bonds were issued last year with $2.167 tr of cumulative issuance till date. Sustainable Debt or GSS+ i.e., green, social, sustainability, sustainability-linked, and transition bonds topped $3.5 trillion by end of 30 September 2022 based on CBI report. Supranational are the largest issuers of GSS+ while sovereigns (excluding government backed entities and local government) only account for 8 percent of the pie. This is one segment that can be expanded significantly for emerging countries. Among the sovereign, the US, France, China, Germany and Netherlands are the five largest issuers. India is proactive in climate action space especially within the renewables sector. India’s ambitious plan to build a $60 billion natural gas distribution system 1or initiatives example LED bulb campaign that reduces carbon emissions by 40 million tonnes annually further fortifies its carbon mitigation and adaption commitment. As India marches ahead, tapping capital markets for Sustainable Debt will surely be a gamechanger.
Read publication on Sustainable Finance by The middle Road.
The Scramble for Energy – Finance & Development A Quarterly Publication of the International Monetary Fund