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Green Municipal Bond (GMB)

Last updated on April 30th, 2025 Posted on April 30, 2025 by NEXT IAS Current Affairs Team  337

Syllabus: GS3/Economy

In News

  • Under Swachh Bharat Mission-Urban, Ghaziabad issued India’s first Certified Green Municipal Bond, raising ₹150 crore for a state-of-the-art Tertiary Sewage Treatment Plant (TSTP).

About Green Municipal Bonds

  • Municipal Bond is a debt instrument issued by urban local bodies (ULBs) or municipal corporations to finance infrastructure and public service projects.
  • The Green Municipal Bond is a subtype of municipal bonds used exclusively to fund environmentally sustainable and climate-resilient infrastructure projects, such as renewable energy, water treatment, and waste management.
  • Article 243W of the Indian Constitution entrusts ULBs with functions like water supply, sanitation, and waste management—making them eligible to raise bonds.

Significance of GMBs

  • Sustainable Development: Aligns with ESG (Environment, Social, Governance) investing principles, now integral to many global investors’ strategies.
  • Low-Cost Capital: Offers cost-effective, long-term financing, often more affordable than commercial bank loans.
  • Broadened Investor Base: Attracts institutional and international investors, reducing over-reliance on traditional domestic loans.
  • Infrastructure Boost: Ideal for urban capacity building in water treatment, sanitation, and waste management.

Challenges

  • Limited Municipal Capacity: Many urban local bodies (ULBs) lack financial expertise and creditworthiness to issue bonds independently.
  • Regulatory Hurdles: Complex approval processes and limited market depth hinder faster adoption of green bonds.
  • Monitoring and Accountability: Ensuring transparent utilization of funds and environmental impact assessment remains difficult.
  • Low Investor Awareness: Limited awareness among domestic investors about green finance instruments reduces demand.

Way Ahead

  • Capacity Building: Strengthen ULBs through training in financial planning, ESG compliance, and project evaluation.
  • Policy Incentives: Provide tax breaks, risk guarantees, and simplified frameworks to encourage green bond issuance.
  • Robust Verification Mechanisms: Establish third-party certification systems for green credentials and impact tracking.
  • Expand Investor Outreach: Promote green bonds to pension funds, insurance companies, and ESG-focused investors.
  • Integrate with National Missions: Align municipal green finance initiatives with AMRUT, Smart Cities, and Jal Jeevan Mission for synergy.

Source: PIB

 
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