Finance Minister Nirmala Sitharaman has approved the framework for sovereign green bond (SGrBs), a new tool for government borrowing. The Ministry and Reserve Bank of India have already decided to raise ₹16,000 crore through such bonds during the second half (October-March) of the current fiscal i.e., 2022-23 (FY23).

These bonds are meant to fund ‘green projects’. A project can be classified as a green project on principles such as encouraging energy efficiency in resource utilisation, reducing carbon emissions and greenhouse gases, promoting climate resilience and/or adaptation, values and improving natural ecosystems and biodiversity especially in accordance with SDG (Sustainable Development Goals) principles. These projects could include those related with renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water & waste management and green buildings besides others.

Green infrastructure

These bonds are part of FY23 General Budget announcement. It was said: “As a part of the government’s overall market borrowings in 2022-23, sovereign green bonds will be issued for mobilising resources for green infrastructure. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy.”

The proceeds from such bonds will be deposited to the Consolidated Fund of India (CFI), and then funds from the CFI will be made available for eligible green projects. For the purposes of ensuring that the proceeds’ allocation and accounting is transparent, clear and beyond doubt, a separate account will be created and maintained by the Finance Ministry. The Public Debt Management Cell (PDMC) will keep a track of proceeds within the existing guidelines regarding debt management, and monitor the allocation of funds towards eligible green expenditures.

Unallocated proceeds

“Unallocated proceeds, if any, will be carried forward to successive years for investment in eligible green projects only. It will be endeavoured that all proceeds are allocated within a span of two years from the date of issuance,” the framework said.

Further it said that green expenditures will include public expenditure undertaken by the government in the form of investment, subsidies, grant-in-aids, or tax foregone (or a combination of all or some of these) or select operational expenditures, R&D expenditures in public sector projects that help in reducing the carbon intensity of the economy and enable country to meet its SDGs.

Metro projects

“Equity is allowed only in the sole case of metro projects under ‘Clean Transportation’ category, as all metro projects in the country access the public share of their total funding through equity investments. Metro projects are implemented through Special Purpose Vehicles (SPVs) meant exclusively for metro transportation projects, and no other project related funding are permissible,” the framework said.

A ‘Green Finance Working Committee’ (GFWC) with representation from relevant line ministries and chaired by the Chief Economic Adviser will evaluate and select the project. It will meet at least twice a year to support the Finance Ministry with selection and evaluation of projects and other relevant work related to the framework. Initial evaluation of the project will be the responsibility of the concerned Ministry/Department in consultation with experts.

Government will provide investors with transparent reporting on the allocation of proceeds of Sovereign Green Bonds as well as on the environmental impact of projects funded by the proceeds. Allocation and utilisation of Green Bonds is also under the purview of audit by Comptroller and Auditor General (CAG). To provide timely and transparent information about the reporting of the allocation of funds from SGrBs issued under this framework, Government of India intends to engage a third-party external reviewer to provide an annual assessment on the alignment of the allocation with the framework’s criteria.