Last Update: January 25, 2023, 2:07 PM IST
Interest in these new types of bonds is growing because investing allows people to effect change.
Explained: Rs. 80 billion ($984 million) issue has been promoted by the authorities to the country’s largest domestic asset managers
India’s first sovereign green bond auction will take place today and policy makers have prepared the ground for its successful launch.
Rupees. 80 billion ($984 million) issue has been promoted by authorities to the country’s biggest domestic asset managers, including state-run insurers and pension funds, as well as foreign investors. money control,
The bonds will be allowed by the insurance industry regulator to count towards insurers’ required infrastructure investments. Banks can use it to meet mandatory government holdings, and there are no restrictions on overseas buyers.
Let us understand it in detail:
What is Sovereign Green Bond?
- Green bonds are bonds issued with the intention of being used by any sovereign entity, intergovernmental groups or coalitions, or corporations. Bond proceeds to fund environmentally sustainable projects, Government to release framework for sovereign green bonds on November 9, 2022, says a report Indian Express,
- The report noted that in recent years green bonds have emerged as an important financial instrument to address the risks of climate change and related challenges.
- Climate change, according to the International Finance Corporation (IFC), a World Bank conglomerates are a threat to institutions, communities and economies, as well as agriculture, food and water supplies.
how do they work?
Interest in these new types of bonds is growing because investing allows people to effect change.
A report from The Balance suggests that green bonds perform similarly to traditional bonds. The bond is sold by the issuer, who then pays interest on the bond to the buyer. Meanwhile, the money is being used by the issuer to fund projects. In the case of a green bond, a company, government or organization uses the bond proceeds to fund environmental projects.
The bond aims to reduce climate impact by allocating some or all of the funds raised to a variety of green projects, such as:
- improving energy efficiency
- Projects in Clean Energy Technology
- improving public transport
- developing wind farms
- Reduce your Carbon Footprint.
- eco-friendly housing
The report notes that the performance of green bonds generally tracks larger bond indexes such as the Bloomberg Global Aggregate Index.
How are they beneficial?
Green bonds provide an opportunity to earn tax-free income. One will also know that there is a good chance that the money you loaned to a corporation is being used responsibly. Companies that use green bonds for funding benefit. The Balance reports that the green angle is attracting a growing number of people who want to contribute and help combat climate change.
Higher demand for green bonds equates to lower borrowing costs. Lower cost means lower trading expenses. These savings are either distributed to you in the form of dividends or are used to reduce the cost of funds.
What inspired the Green Bond?
The Intergovernmental Panel on Climate Change (IPCC), a United Nations agency that provides scientific data on climate change and its political and economic consequences, issued a report in 2007 linking human activity to global warming. In late 2007, a group of Swedish pension funds sought to invest in climate-friendly projects. Less than a year later, in November 2008, the World Bank became the first institution to raise money from fixed-income investors to make loans to qualified climate-focused projects. In response to investors seeking fixed-income climate-related investments, IFC issued its first green bond in 2010.
Then, in 2013, IFC issued the market’s first global US dollar benchmark-sized green bond, with two $1 billion issuances that year; It set a precedent as the largest green bond at the time of issuance and a World Bank report explained that it helped strengthen the mark.
examples of green bonds
According to Investopedia, the World Bank is a major issuer of green bonds, issuing $14.4 billion between 2008 and 2020. These funds have been used to support 111 projects around the world, most of which are focusing on renewable energy and efficiency (33). %), clean transportation (27%), and agriculture and land use (15%).
One of the Bank’s first green issuances financed the Rampur Hydroelectric Project, which aimed to supply low-carbon hydroelectric power to the electricity grid of northern India. It generates approximately 2 MW per year and saves 1.4 million tonnes of carbon emissions due to the issuance of green bonds.
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