Challenges of Sovereign Green Bonds
1. Maintaining Liquidity and Enabling Trade: As per RBI, SLR (statutory liquidity ratio) and repo transactions will be available to green bonds. This will help in maintaining liquidity and facilitating trading of the SGB bonds. Similar to Denmark, twin bonds can be issued to maintain liquidity. Here, two comparable and interchangeable bonds are issued where investors can shift between these two bonds and this facility promotes trade and liquidity. Earlier, based on the twin bond strategy, the Indian government issued market stabilization bonds.
2. Interest Rates Issue: As investors are aware of the geranium, their expectation also increases as per the government rules. The interest rates of the green bond and traditional bonds are always under comparison. As per the US Federal Reserve, a minimum of 8 basis points is necessary to imply the green bond compared to the traditional bonds.
3. Lack of Awareness: A major obstacle for developing economies with green bond markets is a lack of knowledge about the concepts and advantages of green bonds. Investors must have a thorough grasp of the specifications used to designate green bonds because uncertainty might prevent them from participating. On the other hand, taking advantage of possibilities, such as government incentives or subsidies that encourage investment in green initiatives, requires educating investors about the financial returns and environmental advantages of green bonds. These issues have resulted in the limited involvement of investors in green finance initiatives in developing nations.