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GS Paper 3:
Topics Covered: Conservation related issues.
Context:
State Bank of India, the country’s largest commercial bank, has dual listed its $650 million green bonds simultaneously on the India International Exchange (India INX) and Luxembourg Stock Exchange (LuxSE). This dual listing is in line with this year’s topic of World Investor Week, ‘Sustainable Finance’, as indicated by the regulatory body International Financial Services Centres Authority (IFSCA).
What Is a Green Bond?
A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects.
These bonds are typically asset-linked and backed by the issuing entity’s balance sheet, so they usually carry the same credit rating as their issuers’ other debt obligations.
- Green bonds may come with tax incentives to enhance their attractiveness to investors.
- The World Bank is a major issuer of green bonds. It has issued 164 such bonds since 2008, worth a combined $14.4 billion. In 2020, the total issuance of green bonds was worth almost $270 billion, according to the Climate Bond Initiative.
How Does a Green Bond Work?
Green bonds work just like any other corporate or government bond.
- Borrowers issue these securities in order to secure financing for projects that will have a positive environmental impact, such as ecosystem restoration or reducing pollution.
- Investors who purchase these bonds can expect to make as the bond matures.
- In addition, there are often tax benefits for investing in green bonds.
Green Bonds Vs Blue Bonds:
Blue bonds are sustainability bonds to finance projects that protect the ocean and related ecosystems.
- This can include projects to support sustainable fisheries, protection of coral reefs and other fragile ecosystems, or reducing pollution and acidification.
- All blue bonds are green bonds, but not all green bonds are blue bonds.
Green Bonds Vs Climate Bonds:
“Green bonds” and “climate bonds” are sometimes used interchangeably, but some authorities use the latter term specifically for projects focusing on reducing carbon emissions or alleviating the effects of climate change.
InstaLinks:
Prelims Link:
- About Green Bonds.
- How do they operate?
- Features.
- How are they different from Blue Bonds.
Mains Link:
Discuss the significance of Green Bonds.
Sources: PIB.
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