Decoding Sovereign Green Bonds!

Decoding Sovereign Green Bonds image

These days, investors are taking a step ahead towards sustainable living. If you are among them, you must know about Sovereign Green Bonds. Let’s explore more about it.

What’s Happening?

Imagine a situation where you stand in front of a bakery and see black smoke emitting from the chimney. We are sure you would pity the environment by just looking at the black smoke. 

But, the harsh truth is that this smoke is nothing in front of the emissions released while burning fossil fuels to generate energy. It would probably be a thousand times what a bakery would emit. 

At the end of the day, it is a severe concern for the environment. Hence, the world is looking for alternatives for generating energy using hydro, wind and solar power projects. 

If we look at some numbers, according to the Ministry of Power, India generated 57.5% of its energy by burning fossil fuels and 42.5% through non-fossil fuels. 

It sounds great. But we have a long way to go, as India has committed to achieving Net Zero Emissions by 2070. Now, that’s a huge commitment, and the government would need hefty funding to achieve the target. 

So, from where will the government gather funding?

How about borrowing money from the general public, who are also concerned about the environment? It will be a win-win situation for everyone.

Hence, Sovereign Green Bonds came into the picture. 

What are Sovereign Green Bonds?

A sovereign green bond is a debt instrument issued by the government of India. It is different from a common bond as it would invest the accumulated money in projects focusing on reducing greenhouse gas emissions. So, as an environment-conscious investor, you know that your money is making efforts to make the world a better place to live while earning a return on your investment. 

Recently, the RBI issued Sovereign Green Bonds (SgrBs) worth Rs 16,000 crores in FY23 in two tranches of Rs 8,000 crore each. The first tranche was opened in January 2023; the second tranche will open in February 2023.

Is the Bond Free From Greenium?

Greenium basically means that investors are willing to pay a premium or accept lower returns in exchange for a sustainable project. 

So, is the bond giving a lower return on your investment? Well, fortunately, that’s not the case. 

It offers a fair rate of return on your investment. The SGrB, with a maturity of 5 years (2028), has a coupon rate of 7.10%, while the SGrB, with a maturity of 10 years (2033), has a coupon rate of 7.29%. 

What’s in it for Investors?

If you think Sovereign Green Bonds would have a very high ticket price, then your answer is yes and no! 

Yes, because it has a high ticket price, it also has a reasonable option for retail investors, which starts at Rs 10,000, and you can invest in multiples of Rs 10,000. 

What’s Next?

Sovereign green bonds will invest in projects that will help India reduce carbon emissions and greenhouse gases, leading to improved natural ecosystems and biodiversity. So, suppose you want to diversify your portfolio with a safe long-term investment and contribute towards a cleaner and greener tomorrow, SGrB can be a great investment option.

That’s it for today. Don’t forget to share it with your friends. 

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