Sovereign Green Bonds Interest Rates

What are Sovereign Green Bonds?

Sovereign Green Bonds are issued by the government to fund projects that work for the climate, environment, and sustainability. In other words, the national governments offer debt securities known as “sovereign green bonds” to finance initiatives that enhance the environment and the climate. These bonds are a part of Green Bonds, which are financial instruments intended to fund initiatives that have a good influence on the environment. Green bonds are usually asset-linked and are backed by the balance sheet of the issuing entity, thus carrying the same credit rating as the other debt obligations of the issuer. The issuance of sovereign green bonds, which signify a government’s dedication to sustainable and eco-friendly projects, sets them apart at the national level. India recently launched its first sovereign green bonds and it is expected that with this initiative, India will be able to boost the energy transition and fund green infrastructure and renewable energy projects....

Who Issues Sovereign Green Bonds?

Governments (both central and state), organizations, and companies are eligible to issue green bonds. Green bonds can be issued only to finance projects that have a positive impact on the environment and climate and offer investors with a fixed regular income. The projects could involve green building, renewable energy, and sustainable transportation among other things. The profits generated from these bonds would be used for environmental projects. Hence, it is different from regular bonds which permit the issuer of the bond to use the earnings for several purposes....

How do Sovereign Green Bonds Work?

1. The government issues sovereign green bonds in the market and they are usually sold via auctions or institutional investors. The proceeds earned from these bonds are designated to finance green, sustainable, eco-friendly projects....

Sovereign Green Bonds Framework of India

1. The Sovereign Green Bonds Framework of India follows the pledges taken by India at the Conference of Parties (COP) 26 held in Glasgow in November 2021. These pledges were known as ‘Panchamrit’. Using these pledges, the Nationally Determined Contribution (NDC) targets set by the Indian government at the Paris Agreement, would be triggered....

Sovereign Green Bonds Interest Rates

The interest rates of Sovereign Green Bonds can be termed “Greenium”. This means, that bonds have lower interest rates and investors agree to avail of this bond due to the noble cause of the sovereign green bonds. Thus, the issuers (governments) take advantage of this and grant lower interest rates as compared to the normal bonds. By offering lower interest rates, issuers reduce their burden and the investors are also satisfied as their money is being used for some noble cause....

Tax Incentive on Sovereign Green Bonds

There is no tax incentive applied to Sovereign Green Bonds. Tax incentive implies tax saving or tax exemption features. Tax saving means reducing the taxable income by investing the amount in specific financial instruments such as provident fund (PF) under Section 80C of the Income Tax Act. On the other hand, tax exemption means there is no tax levied on the interest received from the tax-free bond. The income of these bonds is tax-free for the investor under Section 10(15) of the Income Tax Act....

Examples of Sovereign Green Bonds in India

In India, the first Sovereign Green Bond was issued by the Government of India, Ministry of Finance on 25th January 2023. The total issue size was about Rs. 8000 Crores (INR 80 Billion). The details of the bond are mentioned below:...

Benefits of Sovereign Green Bonds

The benefits of SGB (Sovereign green bonds can be mentioned as,...

Challenges of Sovereign Green Bonds

1. Maintaining Liquidity and Enabling Trade: As per RBI, SLR (statutory liquidity ratio) and repo transactions will be available to green bonds. This will help in maintaining liquidity and facilitating trading of the SGB bonds. Similar to Denmark, twin bonds can be issued to maintain liquidity. Here, two comparable and interchangeable bonds are issued where investors can shift between these two bonds and this facility promotes trade and liquidity. Earlier, based on the twin bond strategy, the Indian government issued market stabilization bonds....

What distinguishes Green Bonds from Conventional Bonds?

The proceedings from a conventional bond can be used for a variety of purposes at the discretion of the issuer. In the case of green bonds, revenues are used only for environmental projects. Green bonds must list the details of the projects where the fund will be used and the expected effect on the environment and the climate....

Difference between Green Bonds and Standard Bonds

Basis Green Bond Standard Bond Purpose Used for funding only environmentally viable projects. Used for any financial projects or purpose depending on the issuer. Can be issued by Governments (both central and state), municipalities, or corporations. Corporations, Governments, and municipalities. Framework There is a green bond framework where all the eligibility criteria and project guidelines No such framework guidelines pertain to standard bonds Investor Appeal Socially responsible investors are attracted Investors who seek financial returns invest in these bonds Certification or Verification Prior to investing, certification or verification is sought by investors. No such certifications are required....

Sovereign Green Bonds – FAQs

Do you get a higher yield or interest on sovereign green bonds?...