The government will issue ₹160 billion (~$1.9 billion) worth of sovereign green bonds (SGB) in the last quarter of the current fiscal year (FY2022-23) to raise funds for the development of green infrastructure, the Reserve Bank of India (RBI) said in its half-yearly review report on government finances.

The funds raised through the first-ever issuance of the SGBs would form part of overall government borrowing.

Earlier this month, the finance ministry told Parliament that the framework for these bonds has been finalized and the bonds are likely to be issued during the January-March 2023 period. Further, it said that the proceeds would be deployed in public sector projects which help in cutting carbon intensity in the country.

The government announced its intention to issue SGB in the Union Budget 2022-23. Thereafter, the finance ministry finalized the framework for the same to comply with the four components including the use of proceeds, project evaluation and selection, management of proceeds, and reporting.

The proceeds from the bonds would be used for financing public projects across nine sectors including climate change, sustainable water, and waste management, clean transportation, renewable energy, and pollution control, among others.

“The framework adopted by India has been termed ‘medium green’ by the Centre for International Climate and Environmental Research (CICERO), the leading global independent reviewer of green bond investment architecture,” the RBI report said.

The SGBs are similar to government securities except for the green clause. Though green bonds have gained popularity, their market at the sovereign level remains very shallow, the RBI said in its report.

“Nonetheless, the issuance of SGBs is likely to expand in the coming years since many countries view green bond issuance as a vital tool for demonstrating moral leadership on climate change as well as funding commitments under the Paris Agreement which was adopted in 2015,” the central bank added.

Even though it is a relatively new concept for sovereigns, corporates have been issuing green bonds in India for a few years in a growing market. However, the country’s global share is minuscule.

Further, the central bank said that compared with its early days, the green bond market is witnessing rapid growth and it is recommended that sovereign nations should consider green bonds as part of their ongoing fundraising mix and integrate a program of issuances into their portfolio.

In October, Switzerland issued sovereign green bonds to raise $760 million. The allocation and impact reporting would be made available in the new year and the details of the deployment of funds would be published.

Almost a year ago, India-based ReNew Energy Global said its subsidiary had raised $400 million at 4.5% through the issuance of green bonds.