Govt Issues Long-tenure Green Bonds In A Bid To Tackle Climate Change: Know What It Is

Asserting that the issuance of sovereign green bonds is part of the government¡¯s overall borrowing programme, Economic Affairs Secretary Ajay Seth has said these rupee-denominated papers will have long tenure to suit the requirement of green infrastructure projects.

Finance Minister Nirmala Sitharaman in her Budget Speech announced that the government proposes to issue sovereign green bonds to mobilise resources for green infrastructure.

PTI

"The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy," she said in the Budget 2022-23.

But, what does it mean? Let's understand this better.

What are green bonds?

Green Bond is a debt instrument that is specially reserved to raise money for climate and environmental projects. In 2009, first official Green Bond was released by the World Bank.

With green savings bonds, your money will be invested to help finance the government's environmental projects in a bid to tackle climate change.

BCCL

How does it work?

Green bonds work like regular bonds with one key difference: the money raised from investors is used exclusively to finance projects that have a positive environmental impact, such as renewable energy and green buildings.

For example, green bonds might be issued to finance renewable energy and energy efficiency projects, clean public transportation, pollution prevention and control, conservation, sustainable water and wastewater management, and green buildings.

When will it come into effect?

In a post-Budget interview with PTI, Seth said this is part of the overall borrowing for the next financial year.

"At this point of time, we are looking at the domestic markets and rupee-denominated...the tenure would be normal like any G-sec tenure. It would be medium to long term but not short term. Fund mobilised will be used in the infrastructure sector, which has a requirement of long term finances," Seth said.

Unsplash/Representational image

Before taking a decision on quantum, Seth said the RBI will come out with a framework, which will have details about projects or sectors that would qualify for funding under the sovereign green bonds.

Besides, he said the guidelines will have details related to the monitoring of fund usage in green or less carbon-emitting areas and assurances for investors.

How is it different than general bonds?

"This is not a general-purpose borrowing. These are going to be purpose-oriented borrowing. We will come out with a framework in the coming months. It's not a one year instrument but there will be more need for such an investment, and more eagerness of the investors in the area in the coming years," he said.

During 2022-23, the government plans to borrow a record Rs 11.6 lakh crore from the market to meet its expenditure requirement to prop up the economy hit by the COVID-19 pandemic.

Seth, however, assured that the government will execute the market borrowing programme in the next financial year in a non-disruptive manner without crowding out the private sector. This is nearly Rs 2 lakh crore higher than the current year's Budget estimate of Rs 9.7 lakh crore.

Reuters

Even the gross borrowing for the next financial year will be the highest-ever at Rs 14,95,000 crore as against Rs 12,05,500 crore Budget Estimate (BE) for 2021-22.

However, the gross borrowing has been revised downwards by nearly Rs 2 lakh crore to Rs 10,46,500 crore for the current financial year helped by an improvement in revenues.

Gross borrowing includes repayment of past loans. The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.

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