SEBI Framework for Environment, Social and Governance (ESG) Debt Securities
To encourage responsible finance and curb "purpose-washing," SEBI has released a detailed framework for issuing and listing ESG (Environment, Social and Governance) debt securities, excluding green bonds. The new norms, which came into effect on June 5, aim to enhance transparency, credibility, and accountability in the ESG debt market. As per SEBI, ESG debt securities will now include three major categories apart from green bonds — social bonds, sustainability bonds and sustainability-linked bonds. These instruments must follow recognized global standards such as the ICMA Principles, Climate Bonds Standard, ASEAN Standards, or any methodology notified by Indian financial regulators.
Social bonds are meant to raise money for projects with a direct social impact, such as affordable housing, clean water, education, or food security. Sustainability bonds combine both environmental and social objectives, while sustainability-linked bonds are performance-based instruments, where the financial terms are tied to the issuer’s achievement of pre-set sustainability targets.
Issuers of such bonds will need to make detailed disclosures before and after the issue. They must outline the specific projects they intend to fund, explain how they will track fund usage, and appoint independent third-party reviewers to verify claims. Post-listing, companies must share impact reports, usage of proceeds, and KPIs in their annual reports. This is aimed at curbing the misuse of ESG labels — known as “purpose-washing” — where companies falsely claim to be funding ESG projects.
As per SEBI, companies listed on SME platforms and looking to issue ESG debt will need to follow bi-annual disclosure norms, as specified in the circular’s annexures. SEBI has also empowered ESG rating agencies and certified reviewers to ensure proper assessments of bond impact and target adherence. Importantly, if any ESG funds are found misused or the projects do not align with their stated purpose, companies may be forced to redeem the securities early.
