What are Sovereign Green Bonds? Top five countries in the green bond market

Since the Finance Minister announced Budget 2022, green bonds have been in the news. During the budget speech, the minister announced that the government plans to issue sovereign green bonds to fund green infrastructure. Let us understand the concept in detail.

Sovereign Green Bonds An Overview

Recently, you would have heard of Sovereign Green Bonds (SGB) in the news. SGB has been in the news since the announcement of Budget 2022 by the Finance Minister. In the budget speech, the minister informed that the government proposes to issue sovereign green bonds to mobilize resources for green infrastructure. 

What are Sovereign Green Bonds?

Countries and multilateral organizations can issue green Bonds, companies to exclusively fund the projects which have positive environmental and climate benefits. Green Bonds were first issued in 2007. 

Investors who invest in green bonds get fixed-income payments similar to other bonds. The organization can invest in projects that include renewable energy, green building, clean transportation, etc.

The issuer of the green bonds decides where the fund will be used and is responsible for making sure investors get the fixed income. When the central government issues green bonds, it is known as Sovereign Green Bonds.

How big is the global green bond market?

As per the report by Climate Bonds Market Intelligence, it is estimated that the green market has been growing steadily since its inception. The demand in 2021 is at an all-time high - it amounts to $517.4 billion. The green bond market has increased by nearly 50% last year. The top five countries in the green bond market are the USA, Germany, China, France, and the UK. India is a bit behind on the list and stands at 17th position. However, the recent announcement by the finance minister will help India go up in the ranking.

How will the government utilize Sovereign Green Bond funds?

Sovereign gold bonds are part of the government's borrowing program in FY23. India plans to achieve a robust 175 Gigawatt of renewable energy capacity by the end of 2022. It will require massive funding. The government will collect funds from the investors, and it plans to deploy the funds to decrease the carbon intensity of the economy through public sector projects. 

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The sovereign green bonds will be rupee-denominated and issued with long-term tenures similar to other government securities to meet the country's demand for green infrastructure projects. The number of green bonds sold in India since 2015 has been limited to a few companies, such as Yes Bank and CLP Wind Farms. Rate of interest offered ranges between 6%-8% per annum.


We hope you now understand sovereign green bonds. Investors who are looking for investment in fixed-income schemes can consider these as one of the options. The interest rates are not yet out, but once they are, investors can compare the rate and tenure and decide whether it is a good option for them or not.


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