What is Green Debt?
They’re a debt instrument public and private entities issue to finance eco-friendly projects. They’re a thriving form of sustainable investment. Sustainable finance has become crucial to initiatives on reducing the devastating effects of the climate crisis.
Pursuant to merger and repeal of the
- SEBI (Issue and Listing of Debt Securities) Regulations, 2008 [“SEBI ILDS Regulations, 2008”] and
- SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 [“SEBI NCRPS Regulations, 2013”]
SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 [“SEBI NCS Regulations, 2021”] were notified vide SEBI notification dated August 09, 2021.
Chapter IX of the SEBI Circular dated August 10, 2021 (updated as on April 13, 2022) specifies the following with reference to issuers of green debt securities:
(a) Additional disclosure requirements in the offer document;
(b) Continuous disclosure requirements in annual report and financial results; and
(c) Responsibilities of the issuer.
In the backdrop of increasing interest in sustainable finance in India as well as around the globe, and with a view to align the extant framework for green debt securities with the updated Green Bond Principles (GBP) recognised by IOSCO, SEBI undertook a review of the regulatory framework for green debt securities.
Accordingly, the Chapter IX of the NCS Operational Circular shall be replaced vide SEBI Circular dated February 06, 2023.
The provisions of this circular shall come into force for all issues of green debt securities launched on or after April 1, 2023.
| S N | Existing Regulation | New Regulation |
| 1. | Disclosure requirements for issue and listing of green debt securities:
An issuer desirous of issuing green debt securities shall make the following additional disclosures in the offer document for public issues and private placements: 1.1. A statement on environmental objectives of the issue of green debt securities; |
Initial disclosure requirements for issue and listing of green debt securities: An issuer desirous of issuing green debt securities shall make the following additional disclosures in the offer document for public issues / private placements: 1.1. A statement on environmental sustainability objectives of the issue of green debt securities; |
| 2. | 1.2. Brief details of decision-making process followed/ proposed for determining the eligibility of project(s) and/ or asset(s), for which the proceeds are being raised through issuance of green debt securities, such as:
a) process followed/ to be followed for determining how the project(s) and/ or asset(s) fit within the eligible green projects categories as defined under Regulation 2 (q) of NCS Regulations, b) the criteria making the project(s) and/ or asset(s) eligible for using the green debt securities proceeds; and c) environmental sustainability objectives of the proposed green investment. |
1.2 Brief details of decision-making process followed/proposed for determining the eligibility of project(s) and/or asset(s), for which the proceeds are being raised through issuance of green debt securities, such as:
a) Process followed/ to be followed for determining how the project(s) and/or asset(s) fit within the eligible green projects categories as defined under Regulation 2 (1) (q) of NCS Regulations, b) The criteria making the project(s) and/ or asset(s) eligible for using the green debt securities proceeds; and c) Details of taxonomies, green standards or certifications both Indian and global, if any referenced and the alignment of projects with said taxonomies, related eligibility criteria, and exclusion criteria, if applicable. d) Details of the alignment of the objective of the issue with the India’s Intended Nationally Determined Contributions in case of the proceeds raised though issuance of transition bonds |
| 3. | 1.3 Issuer shall provide the details of the system/ procedures to be employed for tracking the deployment of the proceeds of the issue. | 1.3 Details of the system/procedures to be employed for tracking the deployment of the proceeds of the issue. |
| 4. | 1.4 Details of the project(s) and/ or asset(s) or areas where the issuer, proposes to utilise the proceeds of the issue of green debt securities, including towards refinancing of existing green project(s) and/ or asset(s), if any. | 1.4 Details of the project(s) and/or asset(s) or areas where the issuer, proposes to utilise the proceeds of the issue of green debt securities, including towards refinancing of existing green project(s) and/or asset(s), if any. |
| 5. | 1.5 Details of an indicative estimate of distribution of proceeds raised though issuance of green debt security between financing and refinancing of project(s) and/ or asset(s); if applicable. | |
| 6. | 1.6 Details of the intended types of temporary placement of the unallocated and unutilised net proceeds from the issue of green debt securities | |
| 7. | 1.7 Details related to the perceived social and environmental risks and proposed mitigation plan associated with the project(s) proposed to be financed/ refinanced through the proceeds from the issue of green debt securities | |
| 8. | 1.5 The issuer may appoint an independent third party reviewer/ certifier, for reviewing/ certifying the processes including project evaluation and selection criteria, project categories eligible for financing by green debt securities, etc. Such appointment is at the option of the issuer; however, any such appointment of reviewer/ certifier, shall be disclosed in the offer document. | 1.8 The issuer shall appoint an independent third party reviewer/ certifier, for reviewing/certifying the processes including project evaluation and selection criteria, project categories eligible for financing by green debt securities, etc.
The said requirement of appointing a third party reviewer/ certifier is applicable on a ‘comply or explain’ basis for a period of two years. ‘Comply or explain’ for the purpose of the above, shall mean that the issuer shall endeavour to comply with the provisions and achieve full compliance by two years from the date of issuance of the circular. In case the entity is not able to achieve full compliance with the provisions till such time, the issuer shall in its annual report, explain the reasons for such non-compliance/ partial compliance and the steps initiated to achieve full compliance |
| 9. | Continuous disclosure requirements:
2. An issuer who has listed its green debt securities, shall provide following additional disclosures along with its annual report and financial results: 2.1 Utilisation of the proceeds of the issue, as per the tracking done by the issuer using the internal process as disclosed in offer document. Utilisation of the proceeds shall be verified by the report of an external auditor, to verify the internal tracking method and the allocation of funds towards the project(s) and/ or asset(s), from the proceeds of green debt securities. 2.2 Details of unutilized proceeds. 2.3 An issuer who has listed its green debt securities, shall provide following additional disclosures along with its annual report: a) List of project(s) and/ or asset(s) to which proceeds of the Green Debt Securities have been allocated/ invested including a brief description of such project(s) and/ or asset(s) and the amounts disbursed. However, where confidentiality agreements limit the amount of detail that can be made available about specific project(s) and/ or asset(s), information shall be presented about the areas in which such project(s) and/ or asset(s) fall into. b) Qualitative performance indicators and, where feasible, quantitative performance measures of the environmental impact of the project(s) and/ or asset(s). If the quantitative benefits/ impact cannot be ascertained, then the said fact may be appropriately disclosed along with the reasons for non-ascertainment of the benefits/ impact on the environment. c) Methods and the key underlying assumptions used in preparation of the performance indicators and metrics; |
Continuous disclosure requirements for listed green debt securities:
2. An issuer who has listed green debt securities, shall provide following additional disclosures along with its annual report and financial results: 2.1 Utilisation of the proceeds of the issue, as per the tracking done by the issuer using the internal process as disclosed in offer document. Utilisation of the proceeds shall be verified by the report of an external auditor, to verify the internal tracking method and the allocation of funds towards the project(s) and/or asset(s), from the proceeds of green debt securities. 2.2 Details of unutilized proceeds including the temporary placement/utilization of unallocated and unutilized proceeds from each ISIN of green debt security issued by the issuer. 2.3 The following additional disclosures shall be made in the Annual Report: a) List of project(s) and/or asset(s) to which proceeds of the Green Debt Securities have been allocated/invested including a brief description of such project(s) and/or asset(s) and the amounts disbursed. b) Qualitative performance indicators and, where feasible, quantitative performance measures of the environmental impact of the project(s) and/or asset(s). If the quantitative benefits/impact cannot be ascertained, then the said fact may be appropriately disclosed along with the reasons for non-ascertainment of the benefits/impact on the environment c) Methods and the key underlying assumptions used in preparation of the performance indicators and metrics; d) Details of the deployment of the mitigation plan (as disclosed in the offer documents) for the perceived social and environmental risks |
| 10. | 2.4 Impact Reporting: Information, on a project-by-project basis, pertaining to reporting of the environmental impact of the projects financed by the green debt securities. Reporting standards or taxonomies followed by the issuer with regard to reporting of environmental impact, if any, shall also be disclosed. | |
| 11. | 2.4 An issuer of green debt securities or any agent appointed by the issuer complying with globally accepted standard(s) for the issuance of green debt securities including measurement of the environmental impact, identification of the project(s) and/ or asset(s), utilisation of proceeds, etc., shall disclose the same in the offer document and/ or as part of continuous disclosures. | 2.5 Disclosures of major elements of Business Responsibility and Sustainability Reporting (BRSR) as mentioned in Annex I to this circular. |
| 12. | 3. An issuer shall appoint a third party reviewer/ certifier for a green debt security for the following:
3.1 Post-issue management of the use of proceeds from the green debt security, 3.2 Verification of the internal tracking and impact reporting The said requirement of appointing a third party reviewer/ certifier is applicable on a ‘comply or explain’ basis for a period of two years. ‘Comply or explain’ for the purpose of the above, shall mean that the issuer shall endeavour to comply with the provisions and achieve full compliance by two years from the date of issuance of the circular. In case the entity is not able to achieve full compliance with the provisions till such time, the issuer shall in its annual report, explain the reasons for such non-compliance/ partial compliance and the steps initiated to achieve full compliance |
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| 13. | Responsibilities of the issuer:
3. An issuer of green debt securities shall: 3.1 maintain a decision-making process which it uses to determine the continuing eligibility of the project(s) and/ or asset(s). This includes, without limitation statement on the environmental objectives of the green debt securities and a process to determine whether the project(s) and/ or asset(s) meet the eligibility requirements; 3.2. ensure that all project(s) and/or asset(s) funded by the proceeds of green debt securities, meet the documented objectives of green debt securities; and 3.3. utilise the proceeds only for the stated purpose, as disclosed in the offer document. |
Responsibilities of the issuer: 4. An issuer of green debt securities shall: 4.1 Maintain a decision-making process which it uses to determine the continuing eligibility of the project(s) and/or asset(s). This includes, without limitation statement on the environmental objectives of the green debt securities and a process to determine whether the project(s) and/or asset(s) meet the eligibility requirements; 4.2 Ensure that all project(s) and/or asset(s) funded by the proceeds of green debt securities, meet the documented objectives of green debt securities; 4.3 Utilise the proceeds only for the stated purpose, as disclosed in the offer document; and 4.4 Ensure compliance with the SEBI circular SEBI/HO/DDHS/DDHSRACPOD1/P/CIR/2023/020 dated February 03, 2023 on “Dos and don’ts relating to green debt securities to avoid occurrences of greenwashing” |
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