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Current Affairs

Green bonds

Date: 25 February 2022 Tags: Miscellaneous

Issue

To finance public infrastructure projects that decarbonize economy, India is set to issue green bonds.

 

Background

The announcement regarding issuing of green bonds was made during the Budget Speech of Union Finance Minister.

 

Details

  • Green bonds are borrowings or securities that are floated by companies or government to fund and finance government debt.

  • It is based upon the idea of investor providing the principal that the issuer needs and receives interest upon the maturity of the bonds. 

  • Green bonds are different from conventional bonds because money raised by issuing these instruments will be used extensively for financing projects that have a net positive contribution to the environment. 

 

Importance of green bonds

  • To finance environment-friendly projects, huge investments are needed. Government in principle does not have such huge reserves.

  • In addition, these projects do not give high financial return for investor. This forces government to issue bonds for financing.

  • Green bonds are also a way of green investments for individuals who believe in environment protection.

 

Significance

  • India is the world’s third largest carbon emitter. The money collected through green bonds will help in mitigating carbon emissions.

  • It signals a country’s seriousness in pursuing climate actions. India will join a select group of countries that have taken steps towards long term solution.

 

Future of green bonds

  • The United Nations’ Intergovernmental Panel on Climate Change estimates investment worth $3 trillion till year 2050 in green bonds.

  • Majority of these investments come from countries such as USA. It is expected that India will also play a major role in environment protection.