Why in the News
Under the banner of Swachh Bharat Mission-Urban, Ghaziabad (Uttar Pradesh) issued the country’s maiden Certified Green Municipal Bond. Through it, collecting ₹150 crore for a state-of-the-art Tertiary Sewage Treatment Plant (TSTP).
Case study of Ghaziabad( its success)
(a) Ghaziabad raised Rs 150 crore through the nation’s maiden Green Municipal Bond.
(b) The funds built a modern tertiary sewage treatment plant (TSTP).
(c) The project runs on a PPP-HAM (a hybrid annuity model is a public-private partnership framework) model with 40% civic investment.
(d) The success of these bonds has boosted the trust of the investors in urban local bodies.
(e) Ghaziabad won the 2024–25 Best Municipal Treated Water Award.
About Green Municipal Bonds
(a) Municipal Bond is a debt instrument issued by urban local bodies (ULBs) or municipal corporations to finance infrastructure and public service projects.
(b) 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.
(c) 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 Green Municipal Bond (GMBs)
(a) Sustainable Development: Aligns with ESG (Environment, Social, Governance) investing principles, now integral to many global investors’ strategies.
(b) Low-Cost Capital: They are more affordable than commercial banks, as they provide cost-effective and long-term financing.
(c) Broadened Investor Base: Due to above mentioned benefits, it attracts institutional and foreign investors, ultimately mitigating over-dependency on traditional loans.
(d) Infrastructure Boost: Ideal for urban capacity building in water treatment, sanitation, and waste management.
Challenges
(a) Limited Municipal Capacity: Many urban local bodies do not have adequate expertise and funds to issue such bonds solely.
(b) Regulatory Hurdles: Complex approval processes and limited market depth hinder faster adoption of green bonds.
(c) Monitoring and Accountability: Opaque utilization of funds is one of the major problems, which is coupled with the environmental impact assessment.
(d) Low Investor Awareness: Limited awareness among domestic investors about green finance instruments eventually reduces demand.
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Way Ahead
(a) Capacity Building: There is a need for training on financial planning, WSG compliance, as well as impact training.
(b) Policy Incentives: Provide tax breaks, risk guarantees, as well as simplified frameworks to encourage green bond issuance.
(c) Robust Verification Mechanisms: Third-party certification systems should be mandatory for green credentials and impact tracking.
(d) Expand Investor Outreach: Promote green bonds to pension funds, insurance companies, as well as ESG-focused investors.
(e) Integrate with National Missions: Align municipal green finance initiatives with AMRUT, Smart Cities, as well as the Jal Jeevan Mission for synergy.
Conclusion
Green municipal bonds in India are in the initial phase but hold tremendous potential to ensure sustainable urban growth. Also, its Success solely depends on regulatory support, investor confidence, as well as municipalities’ ability to adopt robust governance frameworks. With targeted efforts, these bonds could become a cornerstone of India’s green finance ecosystem.