OVERVIEW:

• The Reserve Bank of India (RBI) Governor, Shaktikanta Das, announced thE trading of Sovereign Green Bonds (SGBs) at the International Financial Services Centre (IFSC) in GIFT City.

• This development aligns with India’s commitment to promoting sustainable finance and facilitating investments in green projects.

• Sovereign Green Bonds were first announced in the Union Budget for FY 2022-23.

ABOUT SOVEREIGN GREEN BONDS:

• Sovereign Green Bonds (SGrBs) are debt securities issued by national governments to raise funds for projects with positive environmental impacts.

• These bonds are designed to finance initiatives that promote sustainability, such as renewable energy projects, energy efficiency improvements, pollution control, and climate adaptation efforts.

• Investors in SGrBs, including individuals, institutional investors, and foreign portfolio investors, are attracted not only by the potential financial returns but also by the opportunity to support environmental goals.

• The issuance of SGrBs helps develop the green bond market, attracting more investment into environmentally friendly projects and setting a benchmark for future green financing.

RECENT DEVELOPMENTS IN SGrB TRADING AT IFSC:

• Ahead of the proposed trading of Sovereign Green Bonds at the International Financial Services Centre (IFSC) in Gujarat, the Reserve Bank of India (RBI) has taken significant steps to facilitate this process.

• A recent amendment to the Foreign Exchange Management (Debt Instruments) Regulations permits Foreign Portfolio Investors (FPIs) to buy and sell SGrBs in the IFSC.

• The amendment specifies that the consideration for the purchase of SGrBs by FPIs must be paid from inward remittances through banking channels or from funds held in a foreign currency account.

• Additionally, the sale or maturity proceeds (net of applicable taxes) of SGrBs held by persons outside India can be remitted abroad, offering a seamless process for international investors.

TIMELINE AND OPERATIONALIZATION:

• RBI Governor Shaktikanta Das announced that trading of SGrBs at the IFSC in Gujarat could commence in the second half of the current fiscal year.

• Das mentioned that discussions with the IFSC authorities are ongoing and expressed confidence that the trading platform would be operationalized soon.

• Das assured that the RBI would consult with the government to address any concerns and explore solutions to improve investor response.

IMPACT ON GIFT IFSC:

• Enhanced Financial Market Positioning: The availability of SGrBs at the IFSC positions it as a key hub for green finance, attracting international investors interested in sustainable investments.

• Increased Investment Flow: By allowing Foreign Portfolio Investors (FPIs) to trade SGrBs, the IFSC can attract more foreign capital. This influx of international investment can boost the financial ecosystem and provide more liquidity and depth to the market.

• Development of Green Finance Infrastructure: The trading of SGrBs will necessitate the development and enhancement of financial infrastructure within the IFSC, including regulatory frameworks, trading platforms, and reporting systems.

• Market Diversification: The introduction of green bonds adds to the variety of financial instruments available at the IFSC, allowing for greater market diversification.

CONCLUSION:

• The trading of Sovereign Green Bonds at the IFSC is a significant step in India’s journey towards sustainable finance.

• With FPIs now allowed to participate, the initiative is poised to attract international investment, furthering India’s commitment to reducing carbon emissions and promoting green infrastructure.

• The RBI and the government’s proactive measures, including the development of a climate finance taxonomy, reflect a strong commitment to enhancing the green finance ecosystem in India.