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GREEN BOND FRAMEWORK

FRAMEWORK FOR SOVEREIGN GREEN SCHEME

1.Introduction:

India's commitment to the preservation of the environment is enshrined in Article 48-A of the Constitution.
Initiatives like the Namami Gange Mission, plastic waste management, National Clean Air Program ara e few examples of India's commitment.
India faces a bigger challenge in coping with the consequences of climate change than most other countries.
Climate change is a global phenomenon but with local consequences.
The National Action Plan on Climate Change (NAPCC) was launched in 2008 with 8 National Missions.
The NAPCC aims at fulfilling developmental objectives with a focus, inter alia, on reducing emission intensity of the economy, improving energy efficiency, increasing the forest cover & developing sustainable habitat standards.
The National Adaptation Fund on Climate Change (NAFCC) was launched in 2015 with the objective to enhance the adaptive capacity of the most vulnerable sections of the population, ecosystems focussing on the climate-sensitive sectors like agriculture, water, forestry, coastal & Himalayan ecosystem.

2.India's Commitments & Stated Policies:

India adopted an ambitious Nationally Determined Contribution (NDC) under the Paris Agreement on a best-effort basis keeping its developmental imperatives in mind.

The NDC targets announced in 2015 were to,

reduce the emission intensity of GDP by 33-35% by 2030 as compared to 2005 levels.
create an additional carbon sink of 2.5-3 billion tonnes of carbon dioxide equivalent through additional forest & tree cover by 2030.
increase the share of non-fossil fuel-based energy resources to 40% of installed electric power capacity by 2030.
India's commitments under the United Nations Framework Convention on Climate Change (UNFCCC) & its Paris Agreement reflect the principle of equity & the principle of common but differentiated responsibilities & respective capabilities in the light of national circumstances.

India's third biennial update report submitted to the UNFCCC in 2021 reports a reduction in emission intensity between 2005-2016 to 24%.
As per Central Electricity Authority, India's share of non-fossil fuel sources in installed capacity of electricity generation increased from 30.5% in March 2015-40.2% at the end of December 2021.
The National Hydrogen Mission for generating hydrogen from green energy sources which aims to use hydrogen blended with CNG as a transportation fuel & an industrial input to refineries to lower carbon emission, improve air quality was also announced.
At COP 26, India underlined the need to start the one-word movement 'Life-Lifestyle For Environment', urging for mindful & deliberate utilization instead of mindless & destructive consumption of natural resources.
The Hon'ble Prime Minister of India in Glasgow in November 2021 enhanced the ambition on addressing climate. These include 5 nectar elements (Panchamrit) of India's climate action;

Reach 500GW non-fossil energy capacity by 2030.
50% of its energy requirements from renewable energy by 2030.
Reduction of total projected carbon emissions by one billion tonnes from now to 2030.
Reduction of the carbon intensity of the economy by 45% by 2030, over 2005 levels.
Achieving the target of net zero emissions by 2070.

3.India's vision:

India's updated NDC will be implemented over the period 2021-2030 through programs, schemes of relevant Ministries & with due support from States & Union Territories.
Government has launched many schemes, programs to scale up India's actions on adaptation & mitigation.
Proper measures are taken under these schemes, progrmas across many sectors, including water, agriculture, forest, energy,enterprise sustainable mobility & housing, waste management, circular economy, resource efficiency.
As a result of aforesaid measures, India has progressively continued decoupling of economic growth from greenhouse gas emissions.
The Net zero target by 2030 by Indian Railways alone will lead to a reduction of emissions by 60 million tonnes annually.
India's massive LED bulb campaign is reducing emissions by 40 million tonnes annually.
India's climate actions have been largely financed from domestic resources & it is now targeting generation of additional global financial resources & transfer of technology as committed under UNFCCC & Paris Agreement.

3.Context:

In keeping with the ambition to significantly reduce the carbon intensity of the economy, the Union Budget 2022-23 announced the issue of Sovereign Green Bonds. The Budget is reproduced as below:

The issuance of Sovereign Green Bonds will help Government of India in tapping the requisite finance from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy.
The Green Bond Framework sets forth the obligations of the Government of India as a Green Bond issuer.
Payments of principal & interest on the issuances under framework are not conditional on the performance of the eligible projects.
Investors in bonds issued under this framework do not bear any project related risks.
Department of Economic Affairs, Ministry of Finance reserves the right to modify this framework according to international best practices or in accordance with the Government of India's international commitments & environmental priorities.
Changes to the framework will be reviewed by an independent provider.
The framework is designed to comply with four components & key recommendations of the International Capital Market Association (ICMA) Green Bond Principles.

The four core components as outlined by ICMA green bond principles are:

Use of proceeds
Project evaluation & selection
Management of proceeds
Reporting

In order to improve transparency, the ICMA recommends that:

The issuer set out a Green Bond Framework which is accessible to the investor;
Advises the issuer to provide for an external review.

4.Core Components of the Framework

A green project classification is based on the following principles:

Encourages energy efficiency in resource utilization
Reduces carbon emissions & greenhouse gases
Promotes climate resilience and adaptation
Values & improves natural ecosystems, biodiversity especially in accordance with SDG principles.

Government of India will use the proceeds raised from Sovereign Green Bonds (SGrB) to finance / refinance expenditure for eligible green projects falling under 'Eligible Categories'.

Eligible Category of Projects & the SDGs impacted are as follows:

*Green project Category*	*Environmental Objective*	*Eligibility Criteria*
Renewable Energy	Climate Change Mitigation, Net zero Objectives	Investments solar/ wind/ biomass/ hydropower energy projects that integrate energy generation & storage. Incentivizing adoption of renewable energy.
Energy Efficiency	Climate Change Mitigation	Design & construction of energy-efficient and energy saving systems, installations in government buildings, properties. Supporting public lighting improvements. Supporting construction of new low-carbon buildings as well as energy-efficiency retrofits to existing buildings. Projects to reduce electricity grid losses.
Clean Transportation	Climate Change Mitigation	Promote public transportation including its electrification & transport safety. Subsidies to adopt clean fuels like electric vehicles including building charging infrastructure.
Climate Change Adaptation	Climate Change Mitigation	Projects aimed at making infrastructure more resilient to impacts of climate change, as well as investments in information support systems, like climate observation & early warning systems.
Sustainable Water & Waste Management	Climate Change Mitigation	Promoting water efficient irrigation systems. Installation/upgradation of wastewater infrastructure including transport, treatment & disposal systems. Water resources conservation. Flood defence systems.
Pollution Prevention & Control	Climate Change mitigation, Environment protection	Projects targeting reduction of air emissions, greenhouse gas control, soil remediation, waste management, waste prevention, waste recycling, waste reduction & energy/emission-efficient waste to energy.
Green buildings	Climate Change Mitigation	Projects related to buildings that meet regional, national/internationally recognized standards or certifications for environmental performance.
Sustainable Management of Living Natural Resources & land use	Natural Resource Conservation	Environmentally sustainable management of agriculture, animal husbandry, fishery & aquaculture. Sustainable forestry management including afforestation/reforestation. Support to certified organic farming. Research on living resources & biodiversity protection.
Terrestrial & Aquatic Biodiversity Conservation	Biodiversity Conservation	Projects relating to coastal & marine environments. Projects related to biodiversity preservation, including conservation of endangered species, habitats, ecosystems.

All eligible Green Expenditures will include public expenditure undertaken by the Government in the form of investment, subsidies, grant-in-aids, tax foregone or select operational expenditures, R&D expenditures in public sector projects that help in reducing the carbon intensity of the economy & enable country to meet its Sustainable Development Goals(SDGs).

Metro projects are implemented through Special Purpose Vehicles(SPVs) meant exclusively for metro transportation projects & no other project related funding are permissible.

The eligible expenditures are limited to government expenditures that occurred maximum 12 months prior to issuance. It will be endeavored that all the proceeds get allocated to projects within 24 months following issuance. Any expenditure already financed and refinanced by dedicated source or other Government agency will be excluded to ensure suitable oversight & avoid double-counting.

5.Excluded Projects:

Projects involving new or existing extraction, production & distribution of fossil fuels, including improvements & upgrades or where the core energy source is fossil-fuel based.
Nuclear power generation.
Direct waste incineration
Alcohol, weapons, tobacco, gaming or palm oil industries
Landfill projects
Renewable energy projects generate energy from biomass using feedstock originating from protected areas.
Hydropower plants larger than 25 MW.

Expenditures directly related to fossil fuel are excluded. Investments/ expenditures aimed at a relatively cleaner Compressed Natural Gas (CNG) is allowed as an eligible expenditure when used in public transportation projects. Subsidy/ incentive for private transportation using CNG is neither envisaged nor included.

6.Project Evaluation & Selection:

Ministry of Finance constituted a Green Finance Working Committee (GFWC) with representation from relevant line ministries & chaired by Chief Economic Adviser, Government of India.
GFWC will meet at least twice a year to support Ministry of Finance with selection & evaluation of projects & other relevant work related to the Framework.
Initial evaluation of the project will be the responsibility of the concerned Ministry/ Department in consultation with experts.

7.Constitution of GFWC:

GFWC was established with clear lines of authority to oversee & validate key decisions on issuance of Sovereign green bonds under the Chairmanship of Chief Economic Adviser, Government of India, members from implementing departments, Ministry of Environment, Forests & Climate Change (MoEFCC), Niti Aayog (India's premier public policy think-tank), Budget Division of Department of Economic Affairs (DEA) & infrastructure finance secretariat, DEA.

The terms of reference of GFWC are as follows:

The committee will select green projects that fall into one or more of the eligible project categories under this framework on basis of the initial evaluation report by the concerned Ministry/Department submitted to the GFWC, which will then review & approve projects for green funding.
The allocation of the proceeds shall be reviewed in a time-bound manner by the GFWC to ensure that the allocation of proceeds is completed within 24 months from the date of issuance.
In the event of postponement or cancellation of an eligible green project, it shall be replaced with another eligible projects & total value of eligible expenditures associated with SGrB will be than the amount of the issue.
This will bring in easy replaceability in case of ineligibility or delays in execution and possible cancellations of projects.
An annual report on the allocation of proceeds to the eligiblr projects along with description of projects financed, status of implementation & unallocated proceeds will be brought out under supervision of GFWC.
Impact of projects in respect of reduction in carbon intensity & environmental benefits will also be assessed & reported separately by GFWC.

8.Initial Selection of Eligible Projects & Expenditures:

Relevant Line Ministries will conduct an internal evaluation to come up with a list of eligible projects based on the Framework in addition to their level of preparedness-1=Ready for investment, 2=under development, 3= under conceptualization.
Each of the projects will carry metrices to best define their environmental & social impact.

9.Assessment & Evaluation of Final set of Eligible Expenditures:

Members of the Green Finance Working Committee will evaluate the entire list of submitted projects, to the best of their abilities, for their adherence to the framework & their alignment with green objectives.
They will be guided on matters of environmental & social fitment by the expert opinion of the Climate Specialist from Niti Aayog & the Representative from Ministry of Environment, Forest & Climate Change.
Ministry of Finance will oversee the entire process of evaluation from the point of view of overall economic fitment.

10.Periodic Selection of New Eligible Green Expenditures:

For every successive year, GFWC will meet to identify a fresh set of eligible expenditures in line with the Framework in consultation with Line Ministries.
Ministries that are currently not part of GFWC will be consulted for generating awareness towards sustainability & green projects within their purview, to identify new projects.
Depending on the Projects selected, GFWC may co-opt new representatives from additional line ministries.

11.Eligible Green expenditures for green bond issuances:

Once the finance bill is passed, Ministry of Finance will inform Reserve Bank of India (RBI) regarding the amount of eligible green expenditures for which proceeds from green bonds can be utilized.
The Ministry will keep track of how proceeds from the issuances are allowed & inform RBI about any remaining eligible green expenditures that can be potentially financed in the subsequent year through another issuance.

12.Principles of Selection of green projects by GFWC:

Eligible green expenditures are mapped to the environmental objectives of ICMA Green Bond principles, UN Sustainable Development Goals (SDGs) & must be in accordance with the Framework in letter & in spirit.
Eligible Green Expenditures must have alignment with the objectives of National Conservation Strategy & Policy Statement on Environment & Development, 1992; National Forest Policy, 1988; Policy Statement on Abatement of pollution, 1992; the National Environment Policy, 2006; additionally all such expenditures will adhere to minimum social safeguards as accorded by the Constitution as well as the laws of the country.
These expenditures must be in agreement with respective state's environmental & social objectives and will only be included if they run no risk of double-counting through any other mechanism/financing instrument.
In any case, equity investment is not envisaged in any project other than metros.

13.Management of Proceeds:

The proceeds will be deposited to the Consolidated Fund of India (CFI) in line with the regular treasury policy & then funds from the CFI will be made available for eligible green projects.
For the purposes of ensuring that the proceeds allocation & accounting is transparent, clear & beyond doubt, a separate account will be created & maintained by the Ministry of Finance Government of India.
Public Debt Management Cell (PDMC) will keep a track of proceeds within the exsiting guidelines regarding debt management & monitor the allocation of funds towards eligible green expendiures.
Unallocated proceeds, if any will be carried forward to successive years for investment in eligible green projects.
It will be endeavoured that all proceeds are allocated within a span of two years from the date of issuance.
Ministry of Finance will set up a dedicated information system with a view to maintaining a complete Green Register including the details of the green bond issuance, proceeds generated, allocations made to eligible projects including information about the eligible projects.
An amount at least equal to the net proceeds from the completed issuances under this framework will be allocated to the financing and refinancing of expenditures that meet the eligibility criteria.

14.Reporting:

Government of India commits to providing investors with transparent reporting on the allocation of proceeds of Sovereign Green Bonds and on the environmental impact of projects funded by the proceeds.
The allocation report will be updated annually until full allocation of proceeds of outstanding Green Bonds & thereafter in case of any material changes & will be brought under the supervision of GFWC.
Department of economic affairs, Ministry of Finance will coordinate the preparation of the reports.

The annual report is expected to consist of the following:

Information about issuance
List of allocated proceeds to eligible projects & type of expenditure
Alignment of the eligible procedures with stated objectives
Total quantum of proceeds generated, allocated & remaining unallocated
Description of projects financed & their status of implementation
Assumptions made, if any
Expected impact of the project in quantitative indicators, indicating reduction in carbon intensity, other environmental benefits and social co-benefits.

As a well-function democracy, India has a strong independent audit system under the Comptroller & Auditor General (CAG) as specified by the Constitution.

CAG audits all receipts & expenditures of Central, State Governments, including all Public Service Enterprises.

The reports of CAG are placed before Parliament.

Allocation & utilization of Green Bonds in under the purview of audit by CAG.

Examples of potential Impact Reporting Metrics

*Green Bond Category*	*Examples of potential metrics*
Renewable Energy	Installed renewable energy capacity in MW. Annual renewable energy generation in MWh. Annual GHG emissions avoided in tons of CO₂emissions. Social Co-benefits : Number of households benefitted Number of under-privileged households benefitted Number of Jobs created.
Energy Efficiency	Number of energy efficiency equipment & appliances installed. Annual energy savings in MWh. Annual GHG emissions avoided in tons of CO₂emissions.
Sustainable management of natural resources	Area of land or ocean conserved/recovered. Area of marine/forest reserves under active monitoring.
Clean Transportation	Number of people who use new ecological public transport. Number of KM of new electric train/road lines created/maintained Annual GHG emissions avoided in tons of CO₂emissions. Air quality improvement(PPM) Social co-benefits Employment generated-number of jobs created/supported. Number of MSMEs supported. Number of people with access to sustainable public transport systems.
Sustainable Water	Volume of water collected and treated Increased water efficiency of systems Number of households that have access to new potable water supply
Green Building	Level of certification by property Annual energy savings in MWh Annual GHG emissions avoided in tons of CO₂ emissions

15External Review:

15.1.Second Party Opinion:

This Green Bond Framework was reviewed by CICERO which has issued an independent Second Party Opinion. It has approved the alignment of the Sovereign Green Bond Framework of the Government of India with the ICMA Green Bond Principles.

15.2.Post Issuance External Verification:

To provide timely & transparent information about the reporting of the allocation of funds from SGrBs issued under this framework, Government of India intends to engage a third-party external reviewer to provide an annual assessment on the alignment of the allocation with the framework's criteria.

The external review will be conducted to:

verify that utilization of proceeds is in accordance with stated objectives of use of proceeds as mentioned in the Frameowork
assess the management of proceeds & of unallocated proceeds, if any

The Framework, Second Party-Opinion, Post-Issuance Allocation Report will be made available on following website:

Ministry of Finance- www.finmin.nic.in

Department of Economic Affairs: www.dea.gov.in

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FRAMEWORK FOR SOVEREIGN GREEN SCHEME

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