The Reserve Bank of India’s (RBI) recent step to allow foreign investors in the International Financial Services Centre (IFSC) to invest in Sovereign Green Bonds (SGrBs) is expected to accelerate India’s green mission. It unlocks a new source of funding for all sustainable projects across the country.

“With this new relaxation, the government can raise money from a wider range of investors to fund its green projects,” explained a spokesperson from the Ministry of Finance. The government has a stated target of raising ₹20,000 crore (US$2.4 billion) via SGrB issuance in FY24, with ₹12,000 crore (US$1.4 billion) planned to be raised in the first half of FY25.

What are Sovereign Green Bonds (SGrBs)?

SGrBs are essentially government bonds specifically designed to raise funds for eco-friendly initiatives. These projects include renewable energy sources like solar and wind power, the development of sustainable infrastructure, and clean transportation solutions.

The International Capital Market Association (ICMA) defines green bonds as those explicitly used to finance or refinance projects with environmental benefits. SGrBs, first announced in the Union Budget for 2022-23, are government bonds specifically issued to finance Sustainable projects. Since the announcement, they have been issued twice, raising a total of Rs 16,000 crore for green projects.

Previously, only domestic investors were eligible to purchase SGrBs. The RBI’s decision to open this avenue to foreign investors in the IFSC significantly expands the pool of potential investors, translating to potentially more capital available for India’s green agenda.

Benefits of Foreign Investment in SGrBs

By allowing foreign investors from the IFSC to participate, the RBI aims to expand the investor base for SGrBs. This relaxation is expected to foster a more robust market for climate bonds in India, attracting much-needed capital for green projects. The funds raised through SGrBs will provide crucial resources for the government to invest in public sector projects that promote environmental sustainability. This could include renewable energy infrastructure, sustainable transport systems, and energy-efficient buildings.

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