SEBI releases operational guidelines on green bonds

Capital markets regulator Securities and Exchange Board of India (SEBI) on February 6 released operational guidelines for the issuance of green bonds in the country. Green bonds are debt instruments issued for financing environmentally friendly projects, such as renewable energy, sustainable water management, and conservation of biodiversity.

The new guidelines outline the eligibility criteria, disclosure requirements, and verification process for green bonds in India. The guidelines aim to promote the development of the green bond market in India and enhance the transparency and accountability of green bond issuances. SEBI has asked the issuers of these green bonds to provide additional disclosures along with the annual reports and financial results.

One of the major guidelines laid down by SEBI asks the issuer of these green bonds to hire a third-party reviewer. The third-party reviewer will help with the post-issue management of the proceeds and verify the internal tracking and impact reporting. The issuer of the green debt securities has to also follow a decision-making process which helps in determining the eligibility of the project.

The regulator has asked the issuers to inform about the proceeds of the issue and how they are being utilized. These disclosures will raise accountability and help in tracking the utilization of funds as mentioned in the offer document. The utilization of funds and the internal tracking will be verified by an external auditor. Furthermore, the issuer will also have to declare the unutilized funds and the temporary placement of these funds.

The issuer of these green debt securities will have to make additional disclosures in their annual reports. These disclosures include the methods, key metrics and performance indicators used to mitigate the social and environmental risks. The environmental impact of the projects financed through the green debt securities needs to be disclosed on a project-to-project basis as well. The methods to assess and report environmental impact needs to be disclosed too.

The new guidelines for these green bonds will come into effect from April 1, 2023. These measures have been taken after considering the growing interest in sustainable financing across the globe and with a view to aligning the extant framework for green debt securities with the updated Green Bond Principles (GBP) recognised by IOSCO.

Moreover, the market regulator SEBI also introduced the concept of blue bonds and yellow bonds, sub-categories of green debt securities, to sustainably finance water and solar projects, respectively.

The release of the operational guidelines on green bonds by SEBI is a positive step towards promoting sustainable finance in India. The guidelines will help in developing the green bond market and attract more investment into environmentally friendly projects.