SEBI proposes expansion of ESG bonds basket

Markets regulator Securities and Exchange Board of India (SEBI) has proposed an expansion of the sustainable finance framework in the securities market by introducing a new category of financial instruments.

This category will include Social Bonds, Sustainable Bonds, and Sustainability-linked Bonds in addition to the current green debt securities. It aims to provide issuers with flexibility in raising funds for projects that align with environmental, social, and governance (ESG) objectives.

In a consultation paper released on Friday, SEBI proposed that issuers, in addition to existing green debt securities, be allowed to raise funds through issuance of social bonds, sustainable bonds, and sustainability-linked bonds. These bonds will collectively be known as ESG Debt Securities.

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This will enable issuers to raise money for more sustainable projects, assisting in closing the funding gap for Sustainable Development Goals.

SEBI said it received representations from market participants, including the Confederation of Indian Industry, to expand the scope of the regulatory framework pertaining to sustainable finance. The expansion would include Social Bonds, in addition to existing Green Debt Securities, as a mode of raising sustainable finance, in line with global practices.

According to the consultation paper, SEBI said it "proposed to introduce the concept of Sustainable Securitised Debt Instruments for the purpose of providing originators of the underlying credit facilities which are within such international or domestic frameworks for sustainable finance, and thereby provide investors as well an opportunity to participate in the sustainable securitised debt instruments".

The consultation paper also addressed the initial and continuous disclosures for sustainable securitised debt instruments that would be based on international frameworks.

Initial disclosures could be made in the offer document for the securities, while continuous disclosures might be included in annual reports or other mandated formats.

The markets watchdog also suggested that issuers of ESG debt securities and sustainable securitised debt instruments appoint an independent external reviewer or certifier, to facilitate transparency and credibility.