India allows FIIs to Invest in Green Bonds

Source– This post on India allows FIIs to Invest in Green Bonds is based on the article “Why has India Allowed FIIs to Invest in Green Bonds?” published in “The Hindu” on 16th April 2024.

Why in the News?

Recently, the Reserve Bank of India (RBI) has allowed investments in the country’s Sovereign Green Bonds (SGrBs) by Foreign Institutional Investors (FIIS).

This decision will expand the available capital for the country’s ambitious objectives, as committed by Prime Minister Narendra Modi at the 2021 COP26 in Glasgow.

About Foreign Institutional Investors (FIIS)

1. Foreign institutional investors (FIIs) are those institutional investors who invest in assets belonging to a different country other than that where these organizations are based.

2. Investors such as pension funds, mutual funds, insurance companies, banks, and other significant financial institutions from abroad are included in Foreign Institutional Investors (FIIs).

3. FIIs are crucial to a country’s financial markets as they enhance liquidity, boost trading volumes, and affect stock prices.

4. These investors deploy their capital into various financial instruments like stocks, bonds, and derivatives, driven by their strategic investment plans and views on market conditions.

5. The capital influx from FIIs can positively or negatively impact the local economy, influenced by factors including market dynamics, governmental policies, and worldwide economic conditions.

6.FIIs in India are governed by the Securities and Exchange Board of India (SEBI), and the Reserve Bank of India (RBI). They also set the investment limits for them.

7. SEBI has over 1450 foreign institutional investors registered with it.

What are green bonds?

1. Green bonds are bonds issued by any sovereign entity, inter-governmental groups or alliances and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable.

The framework for the sovereign green bond was issued by the government on November 9, 2022.

3. Green bonds are specifically designed to fund environmentally friendly initiatives. The projects they finance can include renewable energy, energy efficiency, clean transportation, sustainable agriculture, and more.

4. Green Bonds provide investors with an opportunity to support environmentally sound practices, impacting the strategic decisions of the entities issuing the bonds.

They offer a way to mitigate risks associated with climate change and aim to achieve returns that are comparable to, if not better than, traditional investments.

UPSC Syllabus: Economy