What are sovereign green bonds and do they offer any tax incentive?
While many green bonds, or climate bonds as they are sometimes called, offer tax incentives to their buyers, the bonds that will be issued by the Indian government are not likely to have any such benefits.
Green bonds are a type of fixed –income instruments that are used to raise funds for environmental or climate-friendly projects. These bonds are meant mostly for institutional investors, who are interested in sustainable development projects. In 2020, the total issuance of green bonds was worth almost $270 billion, as per data by the Climate Bond Initiative. While the World Bank has taken the lead in issuing such bonds, governments are not far behind in issuing their own sovereign green bonds. The Indian government is set to launch its maiden green bonds in the coming months. According to a report in The Financial Express, these bonds are likely to be issued in the second half of the ongoing financial year.
Through these sovereign green bonds, the government aims to raise Rs 20,000 crore-Rs 25,000 crore. In her Budget 2022 speech, Finance Minister Nirmala Sitharaman had stated that the Centre will issue green bonds as part of its overall market borrowings in 2022-23 to mobilise resources for green infrastructure. Furthermore, Reserve Bank of India Governor Shaktikanta Das had earlier stated that the central bank and the Union government are working together to issue sovereign green bonds in line with international standards.
Will the sovereign green bonds have any tax incentives?
While many green bonds, or climate bonds as they are sometimes called, offer tax incentives to their buyers, the bonds that will be issued by the Indian government are not likely to have any such benefits. An official, on condition of anonymity, stated to Financial Express that higher interest rates and tax incentives will defeat the purpose of raising low-cost funds for long-term environment-friendly projects. However, the official added that many investors will still flock to invest in the sovereign green bonds. “We are sure businesses and funds who want to invest in green technologies and ventures for their ESG (Environmental, Social, and Governance) goals will lap up the issue,” the official stated.
With this issue, SBI will become compliant with the global standards as prescribed by the Climate Bonds Initiative, a global not-for-profit investor-focused organisation
Sebi will also issue necessary procedures to ensure compliance of the provisions post listing.