Green bonds

Why in news?

• Power Finance Corporation Ltd (PFC), the leading NBFC in power sector, has successfully issued its maiden Euro 300 million 7-year Euro Bond.
• It is the first ever Euro denominated Green bond issuance from India.
• Moreover, it is the first ever Euro issuance by an Indian NBFC and the first Euro bond issuance from India since 2017.

About Green Bond:

• A green bond is a type of fixed-income instrument (debt instrument  ) that is specifically earmarked to raise money for green projects
• Green bonds are designated bonds intended to encourage sustainability and to support climate-related or other types of special environmental projects.
• Green bonds may come with tax incentives to enhance their attractiveness to investors.
• The World Bank is a major issuer of green bonds.
  • It has issued 164 such bonds since 2008, worth a combined $14.4 billion.
• Green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, clean water, and sustainable water management.
• They also finance the cultivation of environmentally friendly technologies and the mitigation of climate change.

How Does a Green Bond Work?

• Green bonds work just like any other corporate or government bond.
• Borrowers issue these securities in order to secure financing for projects that will have a positive environmental impact, such as ecosystem restoration or reducing pollution.
• Investors who purchase these bonds can expect to make as the bond matures.

Regulation:

• The Securities and Exchange Board of India (SEBI) has put in place disclosure norms for issuance and listing of green bonds.
• Green bonds constituted only 0.7% of all the bonds issued in India since 2018.
• However, bank lending to the non-conventional energy (renewable energy) constituted about 7.9% of outstanding bank credit to the power sector, as of March 2020.
• Most of the green bonds in India are issued by the public sector units or corporates with better financial health.

PRACTICE QUESTION:

Which of the following statements are correct regarding green bonds?

1. Securities and Exchange Board of India (SEBI) regulates green bonds in India.

2. NBFCs are not permitted to issue green bonds in India.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer