Pension funds to soon be able to invest in sovereign green bonds: What it means for you

The Pension Fund Regulatory and Development Authority (PFRDA) will allow pension funds to invest in Sovereign Green Bonds (SGrBs). The government is expected to issue sovereign green bonds in the second half of the current financial year as part of the overall market borrowing programme. The regulator will allow pension fund to invest in sovereign green bonds as and when issued.

Last financial year, the government raised Rs 16,000 crore from the maiden issuance of SGrBs for funding public sector projects seeking to reduce carbon emissions.

These are bonds issued by any sovereign entity, inter-governmental groups or alliances and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable.

The decision by the PFRDA to allow funds to invest in sovereign green bonds holds significant implications for retail investors.

"By including these environmentally conscious debt instruments in their investment portfolios, pension funds can achieve diversification, spreading risk across various asset classes and promoting sustainable investments aligned with environmental, social, and governance (ESG) principles," Abhijit Roy, CEO at GoldenPi, an online bond marketplace said.

Retail investors, who are increasingly conscious of the environmental impact of their investments, can now align their pension contributions with their values, supporting projects that promote sustainability, renewable energy and environmental protection.

With sovereign green bonds typically issued with longer maturities, Roy said that they offer stability and long-term returns, making them suitable for retail investors' pension needs.

"The inclusion of these bonds in pension funds reflects the growing global trend of focusing on sustainable development and climate change mitigation, providing investors with opportunities to contribute to environmentally responsible initiatives. Moreover, this can raise awareness among retail investors about sustainable investing, encouraging a more informed and socially responsible approach to financial decision-making. As retail investors venture into this space, they may benefit from reduced market volatility, as sovereign green bonds are considered relatively safe investments with government backing," he told CNBC-TV18.com.