India Sets New Standards for ESG Bonds
Overview
India has introduced a comprehensive regulatory framework for social, sustainability, and sustainability-linked bonds (SLBs), aiming to boost transparency and accountability in ESG debt markets. The new rules, issued by SEBI, mark a significant step in aligning India’s financial instruments with global ESG standards.
A New ESG Era for India
The Securities and Exchange Board of India (SEBI) has launched a new framework targeting ESG debt securities—excluding green bonds, which are already regulated separately. This move is designed to enhance the credibility and impact of social and sustainability-linked bonds in India’s growing sustainable finance market.
Clear Definitions and Use of Proceeds
Under the new rules, bonds can only be labeled as Social, Sustainability, or SLBs if they fund projects that align with globally recognized standards such as the ICMA Principles or the Climate Bonds Standard. For social bonds, SEBI has outlined specific eligible categories, including:
Affordable basic infrastructure
Access to essential services
Employment generation and unemployment alleviation
Food security
Socioeconomic advancement and empowerment
Transparency Through Disclosure
Issuers are now required to provide detailed disclosures both before and after bond issuance. These include:
Objectives and target populations of social projects
Decision-making processes for project eligibility
Tracking and reporting on the use of proceeds
Annual updates on fund utilization and unutilized amounts
Independent Oversight
To ensure integrity, issuers must appoint independent third-party reviewers. These reviewers will verify alignment with ESG standards, assess internal tracking systems, and validate impact reporting. This requirement applies to both social bonds and SLBs.
SLBs: Linking Finance to Performance
For sustainability-linked bonds, the framework mandates disclosures on:
The issuer’s sustainability strategy
Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs)
The rationale behind KPI selection and their relevance to ESG goals
Third-party reviewers must also evaluate the robustness of KPIs and the ambition of SPTs, ensuring that SLBs are not just symbolic but tied to measurable outcomes.
India’s new ESG bond regulations are a bold step toward embedding sustainability into its financial system. By enforcing rigorous standards and transparency, SEBI is not only protecting investors but also ensuring that capital flows toward projects that genuinely benefit society and the environment.
