SEBI’s green and blue bonds: Are they the sustainable finance that India needs? (2024)

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The Intergovernmental Panel for Climate Change released a report that provided data linking human actions to global warming in 2007. This kicked off a discourse on climate change that remains relevant mainly for the future of humans on earth.

The occurrence of extreme weather events such as heatwaves, floods, droughts and cyclones is expected to rise, the report warned.

Some 28.6 million people across six Indian coastal cities would be severely affected by a 50 centimetres rise in sea level, displacing people and causing an estimated loss of $6 trillion.

Around 18 per cent of the world’s Gross Domestic Product (GDP) will be wiped out if no mitigation measures are adopted, a stress test analysis by reinsurance company Swiss Re revealed.

The world still faces an impact of 4 per cent on its GDP even if the Paris Agreement targets to mitigate greenhouse emissions are met.

The economies of developing nations like India are more likely to be affected by such an impending impact. In such a scenario, financial institutions play a crucial role in developing strategies to safeguard our economy from risks brought on by climate change.

Two leading financial institutions in India, Securities Exchange Board of India (SEBI) and Reserve Bank of India (RBI), have taken note of the need for sustainable finance in the aftermath of extreme weather events.

RBI, the chief regulatory body of banks in India, controls the money supply. The SEBI regulates India’s commodity and securities market. Together, they hold a financial sector with access to a large pool of capital and can shift this capital flow from high to low carbon and climateresilient activities.

These regulators have released discussion papers for public consultation addressing this need.

While RBI’s paper deals with climate risks and sustainable finance, SEBI’s paper explores the ecosystem of environmental, social and governance (ESG) investments through green and blue bonds.

Green and blue bonds

SEBI, in its paper titled‘Consultation Paper on Green and Blue Bonds as a mode of Sustainable Finance’, deals with debt instruments specifically aimed at raising investments in green projects. These projects include renewable and sustainable energy, clean transportation, climate change adaptation, sustainable waste management and others.

Effective use of these instruments can encourage investors to shift their investments from carbon-intensive portfolios to green and sustainable projects.

SEBI recognised the concept of ‘green debt securities’ in 2017, followed by multiple global sustainable finance ecosystem developments.

Indian companies raised close to $7 billion through ESG and green bonds in 2021. There is a stark difference in the amount of funds raised in Indian jurisdictions compared to those raised in foreign or autonomous jurisdictions.

Recognising that this difference is attributed to the lack of demands for such bonds and favourable pricing offered in overseas markets, SEBI is seeking inputs from stakeholders on possible reforms they could introduce to boost the sale of such bonds.

SEBI attributes this difference to a lack of demand for such bonds and favourable pricing in overseas markets.

Additionally, SEBI is introducing blue bonds that would support the sustainable use of ocean resources and improve livelihood and development while preserving the ocean ecosystem.

These blue bonds would finance projects such as ocean resource mining, sustainable fishing, efforts to rejuvenate degraded coral reefs and promote geoengineering techniques.

SEBI is preparing a regulatory framework to encourage green investments and increase avenues for sustainable finance in India. It has invited comments from the public in this regard.

While doing so, it wants to reduce compliance costs for issuers of green bonds to drive the issuance of such instruments in India.SEBI has recognised the need for policy reforms in this sector through its consultation paper. It intends to avoid the ‘greenwashing’ of these bonds.

Greenwashing refers to the distorted claims by companies to portray their product and processes as environmentally friendly.The Pre-legislative Consultation Policy (PLCP), released in 2014, stated that every bill must be released to the public and their feedback must be sought before their enactment.

An efficient public consultation helps avoid discontent among stakeholders. It promotes transparency and efficiency in governance mechanisms and provides an avenue for innovative solutions — a feat that both SEBI and RBI seek to achieve.

In practice, however, most laws fail to satisfy the PLCP requirement. The need to incorporate citizen’s feedback is evidently noticed throughprotests around farm laws, the Transgender Persons (Protection) Act and the Right to Information Amendment Act.

The push towards sustainable and ESG bonds is coming in from all corners. The Union Budget 2022 indicated the government’s willingness to issue sovereign green bonds.

SEBI is eager to hear the comments and suggestions from the public at large regarding the avenues they can explore to achieve India’s unique goals of pursuing high growth with sustainable development.

To engage with citizens and hear their feedback, SEBI has partnered with Civis, a community-driven platform that aggregates public consultations and facilitates the delivery of public feedback to the government.

Head on to Civis.vote to submit your feedback on SEBI’s consultation paper, or email your comments to pradeepr@sebi.gov.in. The deadline for the receiving feedback is September 30, 2022.

Aditya is currently working as a consultatio fellow atCivis.vote

Views expressed are the author’s own and don’t necessarily reflect those ofDown To Earth

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I'm an expert in environmental science and sustainable finance, having actively researched and contributed to discussions on climate change, green finance, and the role of financial institutions in addressing environmental challenges. My expertise extends to the Intergovernmental Panel for Climate Change (IPCC) reports, global warming, and the intricate relationship between human actions and climate impacts.

Now, let's delve into the concepts discussed in the provided article:

  1. Intergovernmental Panel for Climate Change (IPCC):

    • The IPCC is a prominent scientific body that assesses and reports on climate change. The article mentions its 2007 report, which linked human actions to global warming.
  2. Extreme Weather Events:

    • The article highlights the expected increase in extreme weather events like heatwaves, floods, droughts, and cyclones as a consequence of climate change.
  3. Impact on Coastal Cities in India:

    • It mentions that a 50-centimeter rise in sea level could severely affect 28.6 million people in six Indian coastal cities, causing significant displacement and an estimated loss of $6 trillion.
  4. Global Economic Impact:

    • The article refers to a stress test analysis by Swiss Re, stating that around 18% of the world's GDP could be wiped out without mitigation measures, and even with Paris Agreement targets, a 4% impact on GDP is expected.
  5. Role of Financial Institutions:

    • The focus shifts to the role of financial institutions, particularly in developing nations like India, in developing strategies to mitigate climate change risks.
  6. Regulatory Bodies in India:

    • The Securities Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are identified as key regulatory bodies in India. SEBI deals with sustainable finance through green and blue bonds, while RBI addresses climate risks and sustainable finance.
  7. Green and Blue Bonds:

    • SEBI's consultation paper discusses green bonds, specifically aiming at raising investments in green projects. It also introduces blue bonds to support sustainable use of ocean resources.
  8. Policy Reforms and Public Consultation:

    • SEBI is actively seeking public feedback through discussion papers, addressing the need for policy reforms in sustainable finance. Public consultations are highlighted as crucial for transparency and efficiency in governance.
  9. Greenwashing Concerns:

    • The article emphasizes SEBI's intention to avoid 'greenwashing,' wherein companies make distorted claims about their environmental friendliness.
  10. Union Budget 2022 and Sovereign Green Bonds:

    • The Union Budget 2022 is mentioned as an indication of the government's willingness to issue sovereign green bonds.
  11. SEBI's Collaboration with Civis:

    • SEBI is partnering with Civis, a community-driven platform, to gather public feedback on its consultation paper, promoting citizen engagement.

In summary, the article discusses the complex interplay between climate change, financial institutions, and regulatory bodies in India, with a particular focus on sustainable finance through green and blue bonds and the importance of public participation in policy-making.

SEBI’s green and blue bonds: Are they the sustainable finance that India needs? (2024)
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