SEBI issues framework for ESG debt securities beyond green bonds

SEBI issued a framework for the issuance and listing of ESG debt securities excluding green bonds, standardising social, sustainability, and sustainability-linked bonds. Indian issuers now face mandatory third-party review, KPI disclosure, and anti-purpose-washing rules under the SEBI Act and Non-Convertible Securities Regulations.

India's Securities and Exchange Board issued a comprehensive framework for the issuance and listing of ESG debt securities excluding green bonds, introducing a standardised structure for social bonds, sustainability bonds, and sustainability-linked bonds aligned with international principles. Finalised after inputs from the Industry Standards Forum, the norms aim to broaden India's ESG debt market and address purpose-washing risks. Funds raised must align with standards such as the ICMA Principles, Climate Bonds Standards, ASEAN Standards, or frameworks specified by Indian financial regulators.

Issuers of social, sustainability, and sustainability-linked bonds, including SMEs listing on SME exchanges, are directly affected. Issuers must appoint an independent third-party reviewer or certifier to validate purpose, methodology, and post-issuance disclosures. For sustainability-linked bonds, issuers must disclose Key Performance Indicators and Sustainability Performance Targets in the offer document and track performance in annual reports, with financial terms reflecting sustainability performance. Initial and continuous disclosures must align with SEBI's Non-Convertible Securities Regulations and the LODR Regulations, 2015.

Issuers must avoid misleading claims, cherry-picking data, and hiding trade-offs, and must disclose any non-compliance such as failure to meet declared objectives, with early redemption possibly triggered by a majority of debenture holders. All issuers must quantify negative externalities and present a balanced impact narrative, while SMEs face biannual disclosure mandates under the circular's annexures. The regulation is legally binding under the SEBI Act, 1992 and the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, with full text on SEBI's website.

Key figure — Governing regulation: SEBI Act, 1992 and NCS Regulations, 2021