Govt unveils sovereign green bonds framework

NEW DELHI: The government on Wednesday released the sovereign green bonds framework with the funds raised through the instrument to be used for projects including renewable energy, supporting electric vehicles and promotion of public transport through its electrification and transport subsidies, biodiversity conservation and climate change mitigation. The framework was unveiled after being cleared by finance minister Nirmala Sitharaman and paves the way for the issue of the instruments following an announcement in the last budget, which was aimed at “significantly reducing the carbon intensity of the economy”. The document coincided with the COP27 summit on climate change in Egypt and reiterated India’s commitment to the cause through the steps being taken by the government. Green bonds are financial instruments that generate proceeds for investment in environmentally sustainable and climate-suitable projects. They command a relatively lower cost of capital, compared to regular bonds and necessitate credibility and commitments associated with the process of raising bonds. Theissue of sovereign green bonds will help the Centre in tapping funds from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy. The document made itclear that equity will be provided only in the case of metro projects, and green spending will include investment, subsidies, grants-inaid or tax foregone, including their combination. “The eligible expenditures are limited to government expenditures that occurred maximum 12 months prior to issuance. It will be endeavoured that all the proceeds get allocated to projects within 24 months following issuance,” it said, adding that the projects will be selected by a panel set up by the finance ministry. Every year, the finance ministry will inform RBI about the spending on green projects for which the funds raised through these bonds will be used. The government said that the framework has been reviewed by CICERO, an independent Norway-based second party opinion provider, with an annual third-party review planned. CICERO has rated India’s green bonds framework as “medium green” with a good governance score, an official statement said.