RBI Allows Foreign Investors to Invest in India's Sovereign Green Bonds

RBI allows FIIs to invest in India's Sovereign Green Bonds, boosting green initiatives and sustainability goals. This move aims to mobilize foreign capital and support India's transition to a low-carbon economy.

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Ayesha Mumtaz
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RBI Allows Foreign Investors to Invest in India's Sovereign Green Bonds

RBI Allows Foreign Investors to Invest in India's Sovereign Green Bonds

The Reserve Bank of India (RBI) has given the green light for Foreign Institutional Investors (FIIs) to invest in India's Sovereign Green Bonds (SGrBs). This move is expected to mobilize foreign capital for India's green initiatives and support the country's sustainability goals.

SGrBs are government debt instruments designed to finance projects aimed at transitioning India to a low-carbon economy. The Indian government has set a target of raising ₹20,000 crore (US$2.4 billion) through the issuance of green bonds in the fiscal year 2024, with ₹12,000 crore (US$1.4 billion) planned to be raised in the first half of fiscal year 2025.

The RBI's decision comes as India strives to achieve its ambitious 2070 net zero goals, which include sourcing 50% of its energy from non-fossil fuel sources and reducing the carbon intensity of its economy by 45%. Previously, SGrBs were mainly subscribed by domestic financial institutions and banks, limiting the government's borrowing options.

The approval for FIIs to invest in India's SGrBs is a significant step in aligning investment portfolios with environmental objectives and ESG considerations. This development is vital for India's green transition goals and the country's efforts to address climate risks and promote sustainable development.

The World Resources Institute has emphasized the need to strategically deploy the proceeds from SGrBs towards initiatives with substantial environmental benefits and alignment with sustainable development objectives, particularly in sectors with limited private capital inflow, such as Distributed Renewable Energy and clean energy transition finance for Micro, Small, and Medium Enterprises (MSMEs).

India has seen a significant increase in its renewable energy capacity, with a target of 450 GW of installed renewable energy capacity by 2030. The country's renewable energy capacity has grown by 250% between 2014 and 2021, and is expected to reach 174 GW in 2023, accounting for 37% of the country's total energy supply.

The RBI's move to allow FII investment in SGrBs is expected to widen the pool of capital available to help India achieve its sustainability targets. As climate finance experts highlight, this decision will be pivotal in identifying new green projects with credible audit trails and high impact, especially in areas that have received limited private capital.

Key Takeaways

  • RBI allows FIIs to invest in India's Sovereign Green Bonds (SGrBs).
  • India aims to raise ₹20,000 crore through SGrBs in FY 2024 and ₹12,000 crore in H1 FY 2025.
  • This move aligns with India's 2070 net zero goals, including 50% non-fossil fuel energy by 2030.
  • SGrBs to fund green initiatives, especially in Distributed Renewable Energy and MSME clean energy.
  • India's renewable energy capacity has grown 250% since 2014, expected to reach 174 GW in 2023.