Bonds are one of the attractive instruments for investments for those who are in need of fixed source of income. Government, financial institutions and big corporate houses can issue bonds to raise capital or funds. The coupon on fixed rate bonds doesn't change over the bond's duration. Stepped-coupon bonds are another variant where the coupon grows over the bond's life. The variable coupon of floating rate notes (FRNs, floaters) is correlated with a benchmark interest rate, such Libor or Euribor. The coupon could be defined as the three-month USD LIBOR plus 0.20%, for instance. It is customary to update the coupon rate every three or four months. Zero-coupon bonds do not yield interest on a regular basis. Since they are issued at a significant discount to par value, the interest is essentially rolled up until maturity, when it is typically subject to taxes. Fixed-income securities known as “green bonds” are issued to finance initiatives that have a net beneficial effect on the environment and climate change. The phrase “ESG investing” refers to a type of sustainable investing that takes environmental, social, and governance (ESG) aspects into account, and this includes fixed-income instruments. Green bonds serve as a link between the need to raise cash and investors' willingness to support sustainable and environmentally beneficial projects. The government of India manages to utilize the proceeds from Green Bonds in projects such as:
Encourage Adaptation and/or Resilience to the Climate
Enhance biodiversity and natural habitats, particularly in line with the sustainable development goals. The private sector and multilateral institutions are the main issuers, with the overall goal being to improve the environment and climate.
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Financing Component: Green bonds may be issued by an issuer to raise money for a project that is thought to benefit the environment or climate.
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ESG Component: The funding includes a pledge to use the money received for initiatives that promote environmental sustainability in exchange for the capital.
Given their declared dedication to funding only sustainable projects, green bonds are strongly associated with the continuous trend towards environmental, social, and governance (ESG) projects(Irfan, Kassim, Shaikh, Kumar, & Jhamnani, 2021). According to the terms of the agreement, the money raised must only be used to fund ESG projects, recycling, clean transportation, and renewable energy projects (such as hydro, solar, and wind).
To be more precise, the following initiatives have been funded.
As depicted in figure 1, by funding investments in renewable energy and the electrification of transportation infrastructure, India's sovereign green bonds demonstrate the country's commitment to increasing the output of renewable energy and lowering its carbon footprint. The proceeds from green bonds earmarked for renewable energy will go toward developing new technologies like tidal energy, as well as promoting the use of tried-and-true renewable energy sources like solar power, wind, and small hydro. Considering that coal now supplies 55% of India's energy needs, it is crucial to support the country's energy transformation process (India Incorporates Green Bonds into Its Climate Finance Strategy, 2023).
Renewable energy, energy-efficient construction, green buildings, sustainable water and waste management, climate change adaptation, sustainable land use and resource management, and the preservation of terrestrial and aquatic biodiversity are some of the other project categories that qualify for funding from the Sovereign Green Bond. The profits from the bond will not be utilized to pay for projects involving the production, distribution, or extraction of fossil fuels (Irfan, Kadry, Sharif, & Ullah Khan, 2023).