[Answered] Assess the strategic significance of allowing Foreign Institutional Investors (FIIs) to invest in Sovereign Green Bonds (SGrBs) in terms of advancing India’s green economy objectives.

SGrBs are a kind of government debt that specifically funds projects attempting to accelerate India’s transition to a low-carbon economy. Recently, RBI greenlighted investments in the country’s Sovereign Green Bonds (SGrBs) by Foreign Institutional Investors (FIIS) — investors such as insurance companies, pension funds, and nation-states’ sovereign wealth funds.

Strategic Significance of FIIs in India’s Sovereign Green Bonds (SGrBs)

• Reduce Carbon footprint: Enabling Foreign Institutional Investors (FIIs) to invest in India’s green projects expands the capital base available to support the country’s ambitious 2070 net zero goals, aiming to achieve 50% of India’s energy from non-fossil fuel sources and reduce the carbon intensity of the nation’s economy by 45%, as committed by India at COP26 in Glasgow 2021.
• Global Recognition: Participation of FIIs in SGrBs raises India’s profile as a leader in the green bond market. This can attract further investments from environmentally conscious investors, showcasing India’s commitment to a sustainable future.
• Benchmarking & Standards: Engaging internationally can promote the adoption of best practices in green bond issuance, with Foreign Institutional Investors (FIIs) potentially requiring compliance with global environmental, social, and governance (ESG) standards. This could result in a stronger green bond framework in India.
• Increasing Green Investments: FII participation in SGrBs can spur increased green investment in several areas, such as waste management, sustainable agriculture, clean transportation, and renewable energy. This capital inflow has the potential to quicken India’s economic transformation to one that is robust and sustainable.
• Technology Transfer and Expertise: FIIs frequently provide knowledge and experience in sustainable investments and green financing. By taking part in SGrBs, FIIs may promote best practices, knowledge sharing, and technology transfer, all of which can improve the efficacy and efficiency of green projects in India.
• Market Deepening and Liquidity: FII participation can increase the overall size and liquidity of the Indian green bond market. This can attract other domestic and international investors, creating a more vibrant market for green financing.

Conclusion

The recently released India’s first SGrB Framework detailing the kind of projects that would receive funding through this class of G-Secs & government’s decision to issue SGrBs to accelerate funding government projects such as harnessing offshore wind, grid-scale solar power production, or encouraging the transition to battery operated Electric Vehicles (EVs) are a step in the right direction.