The Reserve Bank of India’s (RBI) recent landmark decision to allow international investors in the International Financial Services Centre (IFSC) to invest in Sovereign Green Bonds (SGrBs) is a significant stride in India’s environmental agenda. This move has the potential to reshape the trajectory of environmental sustainability in India by providing a fresh stream of funding for all sustainable projects in the country.
A Ministry of Finance official clarified, “With this new relaxation, the government can raise money from a wider range of investors to fund its green projects.” The government intends to generate ₹12,000 crore (US$1.4 billion) in the first half of FY25, with a target of ₹20,000 crore (US$2.4 billion) through the issue of SGrBs in FY24.
Sovereign Green Bonds
In essence, SGrBs are government bonds created primarily to raise money for environmentally friendly projects. These initiatives include the creation of sustainable infrastructure, clean transportation options, and renewable energy sources like wind and solar energy.
According to the International Capital Market Association (ICMA), green bonds are specifically intended to fund or refinance environmentally beneficial initiatives. SGrBs were initially mentioned in the Union Budget for 2022–2023. Since their announcement, they have been issued twice, raising Rs 16,000 crore for environmentally friendly initiatives.
Previously, SGrBs could only be acquired by domestic investors. However, the RBI’s move to allow foreign IFSC investors access to this channel is revolutionary. It significantly broadens the group of possible investors, which might contribute a sizable sum of money to India’s green agenda and raise hopes for a more sustainable future.
Advantages of International Investment in SGrBs
The RBI’s decision to allow international investors in SGrBs through the IFSC is a strategic policy adjustment aimed at fostering a robust climate bond market in India. This move is expected to attract much-needed funding for environmentally friendly projects and assure the public of their financial viability.
The government, bolstered by the funds raised through SGrBs, will be able to make substantial investments in public sector initiatives that promote environmental sustainability, such as energy-efficient buildings, sustainable transportation networks, and infrastructure for renewable energy.
Source: ESG Times
