Union Budget 2022: Finance minister eyes green pathway to finance

The government has for the first time unveiled a sovereign green bonds issue. The bonds will be part of the Centre’s borrowing programme and proceeds will be passed on to public sector projects that reduce the carbon intensity of the economy.

"Since the word used in the document is “sovereign green bonds” and its proceeds will be deployed in ESG (environment, social and governance)-compliant projects, I think this should logically be an offshore bond issuance. It’s only logical that global investors will give the best pricing and commit large funds to this kind of issuance. If this is an offshore issuance, it will surely provide respite to the debt markets,” said Ashhish Vaidya, head of treasury, DBS Bank.



In addition, the government will promote thematic funds in sunrise sectors such as Climate Action, Deep-Tech, Digital Economy, Pharma and AgriTech for providing blended finance with government share being limited to 20% and the funds being managed by private fund managers. The objective is for government to lead the investment and achieve a multiplier effect similar to what funds promoted by government-backed National Infrastructure and Investment Fund and SIDBI Fund of Funds were able to do.

Worldwide, governments have been tapping into sovereign green bonds to raise funds for projects that aid the environment. Close to $100 billion has been raised through issues of Sovereign Green Bonds in 2021 with the UK, Italy and Spain being the large issuers. Green bonds are similar to any borrowing except that end-use of the proceeds is dedicated to projects that contribute to climate mitigation or adaptation. Projects mitigating climate change aim to reduce the emission of greenhouse gases. The issue of these bonds makes sense as there are institutional funds that invest only in sustainable projects.