Summary

Securities and Exchange Board of India (SEBI) vide its circular dated 24th November, 2022 with respect to Green Debt Securities vis-à-vis its offering as Municipal Debt Security, has notified that for the purpose of SEBI (Issue and  Listing  of  Municipal  Debt  Securities)  Regulations,  2015 [ILMDS], the green debt securities would be also permissible security, and since ILMDS itself does not define Green Debt Security;

A. The definition of Green Debt Security shall be mutatis mutandis Regulation 2(1)(q) of the SEBI (Issue and Listing of Non Convertible Securities Regulations, 2021  (NCS Regulations).

B. Further, the issuer shall comply with Green Debt Security Regulations as laid by Chapter IX of Operational Circular dated August 10, 2021 (SEBI/HO/DDHS/P/CIR/2021/613)

Issue

Earlier, in accordance with NCS regulations, issuance of Green Debt Security (i.e. Debt Security for purpose as defined in Regulation 2(1)(q) of NCS) was permissible, but the same were not notified/defined in ILMDS regulations.

Effect of Notification

In accordance with this notification, the ILMDS would now have the definition of Green Debt Security being deemed read into the regulations pari material to NCS regulation 2(1)(q) i.e.;

“green debt security” means a debt security issued for raising funds that are to be utilised for project(s) and/or asset(s) falling under any of the following categories, subject to the conditions as may be specified by the Board from time to time:

(i) Renewable and sustainable energy including wind, solar, bioenergy, other sources of energy which use clean technology,

(ii) Clean transportation including mass/public transportation,

(iii) Sustainable water management including clean and/or drinking water, water recycling,

(iv) Climate change adaptation,

(v) Energy efficiency including efficient and green buildings,

(vi) Sustainable waste management including recycling, waste to energy, efficient disposal of wastage,

(vii) Sustainable land use including sustainable forestry and agriculture, afforestation,

(viii) Biodiversity conservation, or

(ix) a category as may be specified by the Board, from time to time.

Further, the compliance regulations shall be in accordance with Chapter IX of Operational Circular dated August 10, 2021 (SEBI/HO/DDHS/P/CIR/2021/613)

Analysis

S&P Global has noted that the value of Green Debt Security market in US shall cross $15 Billion soon. It is a welcome step towards speedy and effective deployment of mechanism in India for financing of green labelled projects to be raised through Green Debt Security mechanism. Interestingly, the notification comes in light of stakeholder and issuers’ representation to SEBI for clarity, through which we may infer the rising interest in the mechanism by the municipal authorities, and India in coming days may shortly witness more of debt offerings through these instruments.

This article has been authored by Varun Matlani, student of law at Gujarat National Law University and CA (Intermediate) at Institute of Chartered Accountants of India, and can be contacted at varun20bcl018@gnlu.ac.in

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