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Sovereign Green Bonds

Feb 13, 2022

Sovereign Green Bonds

Today’s story in focus is Sovereign Green Bonds. Understand what they are, their relation with World Bank and accordingly align your UPSC exam preparation. Green Bonds were in the news recently.

Why in the News?

In the Union Budget for 2022-23, the Centre has announced that it proposes to issue sovereign green bonds to mobilize resources for green infrastructure.

Probable Question

Investment in Green infrastructure is the way forward to meet the climate targets outlined by India at COP26. Examine.

About Green Bonds

● A green bond is a fixed-income instrument designed specifically to support specific climate-related or environmental projects.

● Green bonds finance projects aimed at energy efficiency, pollution prevention and sustainable development.

● Green bonds come with tax incentives such as tax exemption and tax credits, making them a more attractive investment compared to a comparable taxable bond.

● To qualify for green bond status, a bond is often verified by a third party such as the Climate Bond Standard Board.

● India is currently ranked 2nd (after China) among the emerging market economies in Sovereign Green Bonds issuance.

○ As of February 2022, there have been 11 issuances of green debt securities, under SEBI guidelines, by private and public sector entities in India amounting to Rs 3,099 crore.

The World Bank & Green Bonds

The World Bank is a major issuer of green bonds and has issued $14.4 billion of green bonds since 2008.

○ These funds have been used to support 111 projects around the world, largely in 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 Hydropower Project, which aimed to provide low-carbon hydroelectric power to northern India. 

Also read: Preparation Plan for Environment & Ecology

the first green bonds

How do Green Bonds help tackle Climate Change?

● Green bonds raise awareness for the challenges of climate change and demonstrate the potential for institutional investors to support climate-smart investments through liquid instruments without giving up financial returns.

● They also highlight the social value of fixed income investments and the need for a sharper focus on transparency.

● The proceeds from these bonds are deployed in public sector projects which help in reducing the carbon intensity of the economy.

● These bonds can be marketed toward Environmental, Social and Governance or ESG-focused funds.

Here’s a detailed video on CoP26 Glasgow Climate Summit, & Other Environmental Issues by Himanshu Sharma Sir, one of our DREAM TEAM faculty:

How Are Green Bonds Different from Blue Bonds?

● Blue bonds are sustainability bonds to finance projects that protect the ocean and related ecosystems.

● This can include projects to support sustainable fisheries, protection of coral reefs and other fragile ecosystems and acidification.

● All blue bonds are green bonds, but not all green bonds are blue bonds.

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