RBI allows FIIs to invest in Green Bonds

• Context (TH): The Reserve Bank of India (RBI) allowed investments in the country’s Sovereign Green Bonds (SGrBs) by Foreign Institutional Investors (FIIs).

Foreign Institutional Investors (FIIS) include institutional investors such as insurance companies, pension funds, and nation-states’ sovereign wealth funds. On the other hand, Foreign Portfolio Investors are a larger group that includes individuals as well as FIIs.

Sovereign Green Bonds (SGrBs)

• Government debt to specifically fund projects to accelerate the transition to a low-carbon economy.
• In the 2022-23 Union Budget, the Indian govt. announced the SGrBs to fund govt. green projects.
• The RBI issued SGrBs worth ₹16,000 crore in two tranches last year, with maturities in 2028 and 2033.
• These bonds qualify as green government securities (G-Secs) for the Statutory Liquidity Ratio (SLR) and Repurchase Transactions (Repo). They are also tradable in the secondary market.
• These were oversubscribed mainly by domestic financial institutions & banks.
• However, it raises the concern that it narrows the government’s borrowing avenues.

SGrBs yield lower interest than conventional G-Secs, and the amount foregone by banks by investing in them is called a Greenium.

Benefits of SGrBs

• Widened pool: It will add up to the capital available to fund the country’s green ambitions.
• Diversification by FIIs: FIIs are interested in diversifying their pool of green investments with considerable regulatory support, particularly in developed countries.
• Green credentials: FIIs might also seek to gain green credentials when such investments are not available in their home markets.
• Addressing greenwashing: India has successfully addressed greenwashing fears with the Sovereign Green Bonds Framework in late 2022.

India’s Sovereign Green Bonds Framework 2022 Implementing Agency: The Green Finance Working Committee (GFWC) is chaired by the Chief Economic Advisor and constituted by the Ministry of Finance. Eligible Projects Investment, subsidies, grants-in-aid, or tax foregone or select operational expenditures related to green projects. R&D expenditures related to reducing the economy’s carbon intensity & progress towards the SDGs. Such expenditures must have occurred a maximum of 12 months prior to the issuance of the SGrB. Excluded Sectors Fossil-fuel extraction and related projects Nuclear power generation Direct waste incineration Alcohol, weapons, tobacco, gaming, or palm oil industries Renewable energy projects generating energy from biomass using feedstock originating from protected areas Landfill projects Hydropower plants larger than 25 MW