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Committee of experts suggest development of voluntary carbon market

Committee for carbon

A ‘Committee of Experts on Sustainable Finance’, constituted by International Financial Services Centres Authority (IFSCA) developing a voluntary carbon market, framework for transition bonds, enabling de-risking mechanisms in an effort to achieving India’s NDC targets and climate change goals.

The committee recently submitted its final report to Chairperson, IFSCA. The committee was chaired by CK Mishra, Former Secretary to Government of India, Ministry of Environment, Forest & Climate Change.

The main focus areas of the committee were directed towards aligning the IFSC regulations with the international best practices, exploring ways in which capital flows through IFSC can be enhanced and also support development of innovative financial products in the area of green and sustainable finance. The committee has provided its recommendation on various aspects of sustainable finance including products, policies and regulations, capacity building and outreach initiatives related to green and sustainable finance.

Some other recommendations include promoting regulatory sandbox for green fintech and facilitating the creation of a global climate alliance among others. Considering the significance of the MSME sector in the economic development of the country, the committee also proposes setting up of a dedicated MSME platform for sustainable lending. The committee recommended facilitating the use of innovative instruments such as catastrophe bonds, municipal bonds, green securitisation, and blended finance.

Focusing on the need to enhance capital flows in IFSC, the committee endorsed the need to enable aggregation facilities, impact funds, green equity in IFSC. In addition to the above, it recommends IFSCA to play a vital role in capacity building which lays the foundation for greening the financial system. Submitting the report Mishra said. “The unique mix of the committee members and the vast canvas on which the recommendations are based will surely provide the right start for the efforts being taken by IFSCA and project it as the hub for sustainable finance.”

Chairperson, IFSCA said, “The report of the committee of experts would go a long way in shaping GIFT IFSC’s strategies to emerge as an international hub for green finance, while also channelizing global capital to meet India’s net zero commitments”.

The report further said that government may consider reduction or abolition of withholding tax for sustainable debt products. IFSCA should take the lead in widening the scope of sustainable finance, through debt, from a few sectors and companies to encompass a greater variety. This will be important in achieving India’s NDC targets and climate change goals.

The IBUs and Stock Exchanges in IFSC should create a pipeline of transactions, for green projects, that require financing. IFSCA to make a representation to the Ministry of Finance for the issuance, listing, and trading of Sovereign Green Bonds and Sovereign Masala Bonds in IFSC. The sovereign bonds will create a benchmark yield curve for the future issuances.

IFSCA to facilitate the structuring and issuance of innovative green products through regulatory framework and guidelines to attract private foreign capital. IFSCA to facilitate blended finance mechanism at IFSC by attracting concessional financing from MDBs, and DFIs, thereby reducing the financial risks of private and commercial investors. IFSCA to revisit certain aspects of IFSCA listing regulations for convertible debt to be in-line with global jurisdictions IFSCA can bolster IFSC’s sustainability credentials by championing the voluntary carbon market and create a voluntary carbon market in IFSC.  It could facilitate development of a dedicated lending platform for green/sustainable projects in the MSME sector. The platform will provide opportunity for MSMEs to avail green and sustainable financing through IFSC.

It will also create an enabling regulatory framework for MDBs to offer products like RSFs and PCGs and could consider coordinating with counterparts from Asian countries to implement measures for blended finance structures/de-risking mechanisms.

IFSCA to facilitate formation and development of green aggregation vehicles (REITs, InvITs, ETF) and facilitate listing on stock exchanges within IFSC to encourage capital flows.  IFSCA to issue specific guidelines/framework for transition bonds enabling carbon intensive industries/sectors to raise global capital for gradual transition towards net-zero.

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