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• 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