The announcement comes ahead of the Reserve Bank of India’s (RBI) planned auction of sovereign green bonds from January 25 to February 9, 2023.
The Insurance Regulatory and Development Authority of India (IRDAI) has urged insurance companies to invest more in green bonds and to encourage them, it said it would consider such outlays as infrastructure investment as part of larger government efforts to boost sustainable development.
The announcement comes close on the heels of the Reserve Bank of India’s (RBI) planned auction of sovereign green bonds from January 25 to February 9, 2023. The government reportedly plans to raise around Rs 16,000 crore ($1.96 billion) through the issuance of green bonds this fiscal year.
In a circular on January 13, IRDAI said that “Investment in sovereign green bonds shall be treated as investment in infrastructure and shall be classified as central government securities.”
It urged insurance firms to consider investing in sovereign green bonds as their contribution towards sustainable development and help prevent environmental degradation.
The move aims to de-concentrate and diversify the insurers’ infrastructure investment portfolio and boost their participation in environmental and social governance (ESG) initiatives.
It is also aimed at reducing carbon, and other harmful gases in the atmosphere as part of the country’s Nationally Determined Contributions (NDCs) under the Paris Climate Change Accord, 2015.
Prior to the latest circular, the regulator had reportedly held detailed discussions with its members on the need to deconcentrate and diversify the infrastructure portfolio and facilitate investments.
Meanwhile, the companies have reportedly sought clarification from the insurance regulator on how they could classify their investments in green bonds being issued for the first time.
Earlier in her 2022-23 budget, Union Finance Minister Nirmala Sitharaman had revealed the plan to issue green bonds to finance green infrastructure projects.
Data from Refinitive shows that green bond issuance totaled US$390.3 billion globally in 2022, down by 19 per cent compared to 2021 levels. Also, a total of 909 green bonds were issued in 2022, a decline of 21 per cent compared to the previous and the lowest volume for a full-year period since 2020.
European issuers held the top for sustainable finance bonds with a 53 per cent market share in 2022, versus 23 per cent from the Asia Pacific region and 18 per cent from the Americas.
Interestingly, sustainable lending loans totaled US$693.4 billion in 2022, down 7 per cent from the prior year and the second consecutive year to surpass the $650 billion mark. In addition, the fourth quarter registered a 9 per cent drop compared to the prior quarter and a 28 per cent decline year-on-year (YoY).