India to soon issue sovereign green bonds worth $3.3 billion; what are they?

India will soon issue its maiden sovereign green bonds worth at least $3.3 billion to fund the shift to a carbon-neutral economy, according to a report by Bloomberg. Finance Minister Nirmala Sitharaman had in her Budget speech in February announced that India will issue sovereign green bonds to fund public infrastructure projects.

What are green bonds?  

Green bonds are government- or company-issued borrowings and securities to fund and finance debt. Green bonds are just like any other debt instrument. They are bought by investors by providing principal to receive interest upon maturity. Green bonds differ from conventional securities in the way that the issuer pledges to use the amount raised purely towards financing projects that have a net positive contribution to the environment.

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The proceeds will go towards projects in the public sector with an aim to reduce the carbon intensity of the economy. India is the third biggest carbon emitter in the world.

Companies such as Yes Bank and CLP Wind Farms have sold $625 million of green bonds in India, according to data from Prime Database. Sovereign green bonds are expected to have lower yields than other sovereign bonds, and have long tenors in order to facilitate capital investments in green energy projects.

Issue sizes may swell in the coming years depending on the success of the upcoming issue.

In order for India to become a net-zero carbon emission economy by the year 2070, the country will need investments to the tune of $10 trillion, according to an analysis by climate and energy research firm CEEW Centre for Energy Finance (CEEW-CEF).