Corporate entities will have to outline the process followed to determine how projects and assets fit within the eligible green project categories for issuing and listing debt securities.

The Securities Exchange Board of India (SEBI) has issued a protocol for listing green debt securities after a review of the regulatory framework in the backdrop of increasing interest in sustainable finance in India and around the world.

By notifying the ‘Issue and Listing of Non-Convertible Securities (Amendment) Regulations, 2023,’ SEBI has sought to align the extant framework for green debt securities with the updated Green Bond Principles (GBP) recognized by the International Organization of Securities Commissions.

The regulations also apply to ‘yellow bonds,’ which comprise funds raised for solar energy generation and the upstream and downstream industries associated with it, and ‘transition bonds,’ which comprise funds raised for transitioning to a more sustainable form of operations in line with India’s Intended Nationally Determined Contributions.

Green debt securities issuers will have to make additional disclosures in the form of a statement on the following:

• Environmental sustainability objectives
• Decision-making process followed to determine the eligibility of projects for which the funds are being raised
• Indian and global green standards and certifications, and alignment of the debt issue with India’s Nationally Determined Contributions in case the proceeds are raised through the issuance of transition bonds

Debt issuers will be required to list out the procedures to be employed for tracking the deployment of the proceeds of the issue, the details of the projects and areas where the proceeds are to be utilized, and the perceived social and environmental risks and proposed mitigation plan associated with the projects.

They will also have to appoint an independent third-party reviewer to certify the processes, including project evaluation and selection criteria and project categories eligible for financing by green debt securities.

The amendments say that the green debt issuer must achieve full compliance by two years from the date of issuance of the circular, failing which the issuer will have to explain the reasons for non-compliance/partial compliance in its annual report.

Green debt issuers will have to provide additional disclosures, along with their annual report and financial results, to reflect the utilization of the proceeds of the issue, as per the tracking done by the issuer, as mentioned in the offer document. The report of an external auditor must verify the utilization. Details of unutilized proceeds must also be provided.

Green debt issuance activity has picked up momentum in India lately, with several private companies raising funds to fund renewable energy projects.

The government of India also auctioned the first tranche of sovereign green bonds worth ₹80 billion (~$986 million) on January 25. The second tranche for a similar amount will be on sale on February 9.