A framework for the deployment of sovereign green bonds shows the government is committed to a marriage of climate and infrastructure. Environmental advocate Ashutosh Senger explains

To tap finance from potential investors for deployment in public sector projects aimed at reducing carbon intensity, the Indian government has released a framework for sovereign green bonds, which highlights the fact that policymakers are working towards merging the two agendas of climate and infrastructure.

According to the International Capital Market Association (ICMA), green bonds are any type of bond instrument where the proceeds, or an equivalent amount, will be exclusively applied to finance or refinance new and existing eligible green projects.

Globally, most of the green bond market is organised through market-based and industry group standards such as the ICMA green bond principles (GBPs). Even though the above-mentioned framework has been designed to comply with four components and key recommendations of the ICMA’s 2021 GBPs, what makes this framework significant is that it takes into account the broader financial and macroeconomic context, as well as India-specific context.

What does the framework for sovereign green bonds comprise? The framework applies to all sovereign green bonds issued by the government. Payments of principal and interest on the issuances under the framework are not conditional on the performance of the eligible projects.

The core components of the framework are:

1) Use of proceeds. The foundation of a green bond is the utilisation of the bond proceeds for eligible green projects. According to the framework, a “green project” classification is based on the following principles: It encourages energy efficiency in resource utilisation; it reduces carbon emissions and greenhouse gases; it promotes climate resilience and/or adaptation; and it values and improves natural ecosystems and biodiversity, especially in accordance with the principles of sustainable development goals (SDGs). The framework also specifies the eligible green project categories in which the government can use the proceeds raised from the sovereign green bonds. It also provides a broad frame of reference as it maps each eligible green project category with the SDGs impacted.

2) Process for project evaluation and selection.

(i) As per the framework, the Ministry of Finance has constituted a green finance working committee (GFWC) under the chairmanship of India’s chief economic adviser. The GFWC will support the ministry with the selection and evaluation of projects, and with other relevant work related to the framework. After receiving the initial evaluation report from the concerned ministry or department, the GFWC will determine eligible projects that fit within the eligible green project categories under the framework. In determining the final list of eligible green projects, the GFWC will be guided on matters of environmental and social fitment.

(ii) Post the passing of the Finance Bill, the Ministry of Finance will inform the Reserve Bank of India regarding the amount of eligible green expenditures for which proceeds from green bonds can be utilised.

3) Management of proceeds.

(i) As per the framework, the proceeds will be deposited to the Consolidated Fund of India (CFI) and then funds from the CFI will be made available for eligible green projects.

(ii) The framework encourages transparency in proceeds allocation and accounting by stating that a separate account will be created and maintained by the Ministry of Finance. A track of proceeds within the existing debt management guidelines will also be kept by the Finance Ministry’s Public Debt Management Cell and it will also monitor the allocation of funds towards eligible green expenditures. The cell is tasked with planning the government’s lending and monitors its cash balances.

(iii) A dedicated information system will be set up by the Ministry of Finance to maintain a green register, which will include the details of the green bond issuances, proceeds generated, and allocations made to eligible projects, including information about these projects.

4) Reporting.

(i) The government commits to providing investors with up to date information in a timely manner on the use of proceeds of sovereign green bonds, as well as on the environmental impact of projects funded by these proceeds. The allocation report will be brought under the supervision of the GFWC, and the co-ordination for the preparation of this report will be done by the Department of Economic Affairs under the Ministry of Finance. This allocation report will be updated annually until the full allocation of proceeds of outstanding green bonds, and thereafter in case of any material changes.

(ii) Among other things, the allocation report will include: the list of allocated proceeds to eligible projects, and the type of expenditure; alignment of the eligible procedures with stated objectives; description of projects financed and their status of implementation; total amounts of proceeds generated, allocated and remaining unallocated; and expected impact of the projects in quantitative indicators where possible, indicating a reduction in carbon intensity, other environmental benefits and, where possible, social co-benefits.

(iii) Transparency is of particular value in communicating the expected and achieved impact of projects. The framework recommends the use of quantitative indicators where possible by referring to and adopting the potential impact reporting metrics provided in table 2 of the framework.(iv) Allocation and utilisation of green bonds have been brought under the purview of an audit by the Comptroller and Auditor General (CAG). Article 148 of the constitution provides for an independent office of the CAG, which is the guardian of the public purse and controls the entire financial system of India at both the central and state levels.

5) External review.

(i) Second party opinion. The government has followed the recommendation of the ICMA’s green bond principles to appoint an external review provider to assess a pre-issuance external review of the alignment of the framework with the four core components of the GBPs. One of the types of external reviews recommended by the GBPs to confirm the alignment of bonds to be issued with the four core components is second party opinion. In this type of external review, an independent institution with environmental expertise conducts an assessment of the alignment of green bonds with the GBPs. To avoid the risk of self-certification, CICERO was engaged by the government to confirm the alignment of the framework with the ICMA’s 2021 GBPs.

(ii) Post issuance external verification. The reporting of the allocation of funds from the sovereign green bonds issued under the framework will be subject to an external review by a third-party external reviewer. This review is aimed at providing an annual assessment of the alignment of the allocation with the criteria of the framework. The review will verify whether the utilisation of proceeds is in accordance with the objectives of the use of proceeds, as mentioned in the framework, and assess the management of proceeds and unallocated proceeds.


The framework’s release sends a strong message from the government that its long-term development strategies and governance model are compatible with the green economy trend promoted by the Paris Agreement. As stated in the 2022-23 Union Budget of India, sovereign green bonds will be issued for mobilising resources for green infrastructure, and the framework creates a positive narrative for investing in climate change solutions. It will also give a push for enhanced green infrastructure, as there will be confidence that the capital will be available to make the infrastructure a reality. The framework’s release also has the potential to increase the private sector’s green bond engagement.

The government may consider developing a priority list of strategic green projects based on the goals expressed in India’s nationally determined contribution. This would provide the government with a pipeline of low-carbon and climate-resilient investment opportunities at a more granular level of detail.

The government may consider working towards ensuring investor demand continues to grow to absorb the expanding supply of sovereign green bond deals, as facilitating increased investment can function as a pull factor to encourage more green bond issuances into the market.

ASHUTOSH SENGER is a New Delhi-based advocate who represents clients in environment-related disputes. He has previously been involved in environmental law advisory and litigation at Shardul Amarchand Mangaldas & Co, and policy research at The Energy and Resources Institute.