Context
- Recently, the Reserve Bank of India (RBI) allowed investments in the country’s Sovereign Green Bonds (SGB) by Foreign Institutional Investors (FIIs).
Sovereign Green Bonds (SGB)
- These are a kind of government debt that specifically funds projects attempting to accelerate India’s transition to a low-carbon economy.
- These bonds are specifically earmarked for funding green projects, assets, and expenditures contributing to environmental sustainability and climate objectives.
Why has RBI allowed FIIs to invest in its Green Bonds?
- Attracting Foreign Investments: By allowing FIIs to invest in green bonds, India attracts foreign capital into its green projects.
- FIIs are investors such as insurance companies, pension funds, and nation-states’ sovereign wealth funds.
- Widening the Pool of Capital: Allowing FIIs to invest in India’s green projects expands the funding sources available for the country’s ambitious climate goals, including achieving net zero emissions by 2070 and increasing the share of non-fossil fuel-based energy sources to 50%.
- Meeting Climate Commitments: India pledged at COP26 to reduce India’s carbon emissions by 45% and increase the share of renewable energy in the country’s energy mix.
- Diversification of Investments: FIIs are looking to diversify their portfolios and seek opportunities in green investments due to regulatory support, particularly in developed countries.
- India’s Sovereign Green Bonds Framework (2022), addresses concerns about greenwashing by providing a credible framework for green investments