No foreign investment cap on sovereign green bonds (SGrBs)

Subject: Environment

Section:

Concept:

The sovereign green bonds issued by the Indian government will not have any restrictions on foreign investment, the Reserve Bank of India said on Monday.
Such securities will be counted as specified securities under the fully accessible route, the central bank said in a notification.
The RBI had earlier this month announced an auction of 160 billion rupees ($1.93 billion) of sovereign green bonds in two tranches, half of is set to be issued on Wednesday.
The proceeds will be used to fund solar, wind and small hydro power projects, including other public sector projects which help in reducing the carbon intensity of the economy.

Fully accessible route

The fully accessible route (FAR) introduced by RBI wherein certain specified categories of Central Government securities are opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well.
Now, the central bank has added sovereign green bonds to the list too.

Significance of this move:

SGrBs will be issued through Uniform Price Auction.
5% of the notified amount for sale will be reserved for retail investors.
SGrBs will be eligible for trading in the secondary market.
SGrBs will be reckoned as eligible investment for SLR purpose.

Sovereign green bond

A sovereign green bond is a debt instrument issued by the central or state government to borrow money from investors.
It is based on the commitment that the mobilized fund will be spent on climate or eco-system related activities.

Sovereign Green Bonds Framework

Recently, the Union Minister for Finance & Corporate Affairs has approved the final Sovereign Green Bonds Framework of India.
The Framework comes close on the footsteps of India’s commitments under “Panchamrit” as elucidated by the Prime Minister at Conference of Parties (COP) 26 at Glasgow in November 2021.
It will further strengthen India’s commitment towards its Nationally Determined Contribution (NDCs) targets, adopted under the Paris Agreement.
Green Finance Working Committee (GFWC) was constituted to validate key decisions on issuance of Sovereign Green Bonds.
The framework has been rated ‘Medium Green’, with a “Good” governance score by a Norway-based independent second opinion provider CICERO.
The ‘Medium Green’ rating is assigned ‘to projects and solutions that represent significant steps towards the long-term vision, but are not quite there yet.
All fossil fuel-related projects have been kept out of the framework, along with biomass-based renewable energy projects that rely on feedstock from ‘protected areas’