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Author: Anuradha Garg, IV Year of B.A.,LL.B(Hons.) From Gujarat National Law University.

The need for sustainable development and the growing concern for resources and waste management, high carbon emissions, and climate change among others have made the world conscious of the huge impact that entities have on the environment. Even though an investor's decision to invest, for decades has been driven by the object of achieving his hunger for gaining higher returns on his investment, he is also not oblivious to the threat that these entities pose to the environment. This has essentially given birth to the concept of green investment and green bonds around the globe. Green bonds can be defined as those debt securities which are committed to finance or refinance environment-friendly projects which is a catalyst for achieving the goals of sustainable development and ensuring inter and intra-generational equity. In turn, investment in these green bonds is regarded as a green investment. These bonds can be issued by any entity like companies, corporations, banks or even the government.

Since investment decisions are now being dictated by the environmental impact, a need to develop and regulate a framework for green investment has been realized by the nations which include India as well. The green bond principles (GBP) published by International Capital Market Association (ICMA), is one such document that focuses on the environmental, social and governance (ESG) framework. The principles, although voluntary, lay immense stress on transparency and a disclosure-based regime for the issuance of green bonds.

SEBI's Guidelines

Recently, SEBI has issued various guidelines for promoting green bonds as well as regulating the issue of green bonds in India. SEBI, pursuant to its consultation paper, issued a circular in February 2023, for revising the disclosure requirements for the issuance of green bonds. The circular has made consequential changes in Chapter IX of the NCS Operational Circular which pertains to green debt securities. Prior to the new circular, the issuer of green bonds had the option to appoint a third party or an independent reviewer as the words read "may appoint." Additionally, if such a reviewer was appointed, the same had to be disclosed. However, a key amendment in the new circular is that now the voluntary requirement of appointing a third-party reviewer has been made mandatory as the words read "shall appoint." Further, the provision is applicable on a "comply or explain" basis. SEBI has also defined comply or explain in the present context that is, the issuer has two years to comply with the aforementioned requirement, and if the issuer does not do the same, he has to explain in his annual report, the reasons for such default. Furthermore, the requirement of appointing a reviewer has also been extended to the post-issuance stage. Now the issuer is compulsorily required to appoint an auditor for the management of the proceeds and also for internal tracking. Additionally, the issuer is obligated to report the environmental effect of a project financed by green debt instruments in his annual report. The impact reporting has to be made as per the standards of the Business Responsibility and Sustainability Report (BRSR). The circular also provides for disclosures of other major elements as per the BRSR which is a mandatory reporting regime for sustainable development in India. Not only that but the issuer is also required to provide detailed plans for the mitigation of any adverse effects which the entity causes on the environment.

Additionally, in another recent circular titled 'Dos and don'ts relating to green debt securities to avoid occurrences of greenwashing', SEBI has further attempted to define 'greenwashing' and has also stated the steps to be taken by the issuer of green bonds.

Analysis and Recommendations

These steps provide for stricter standards of adherence and therefore are welcome. It will not only boost investor confidence and promote international investment in India but will also prevent instances of greenwashing which are largely prevalent worldwide. In light of this, the endeavour on part of SEBI to define greenwashing in its circular is remarkable given the lack of any global taxonomy for the term. Further, issuing a bond for green activities and ensuring the bond remains green are two separate challenges. There have been concerns in the past of a green investor's money being diverted to finance other activities of a corporation rather than the green project for which such a bond was issued. Even recently, a US beef giant, JBS was accused by Mighty Earth NGO of defrauding investors. The allegation pertained to the fact that the company's impact analysis did not take into account 97% of its emissions, and based on the misleading impact analysis, the company issued sustainable bonds and raised a total of 3.2 billion dollars. Thus, green investors have always been worried about the quality of reporting and disclosure standards. With the advent of the new circulars, it would be difficult for the entities to make false claims or escape liability as impact reporting is an objective criterion. Along with the impact, the standards used to report such impact have to be disclosed as well which is an admirable attempt by SEBI to enhance the quality of reporting standards. Further, the tracking process will help in keeping these entities in check since they can become sleazy after receiving approval for the issuance of green bonds and may fault in continued compliance.

The question may arise whether such regulations will act as a deterrent to the issuance of green bonds. The answer to that is no; the investors especially international investors, tend to radiate towards green debt securities since they are given tax and other financial incentives for green investment. At the same time, an investor would also want to ensure that his investment is not being misused to fulfil other motives of the entity. Therefore, naturally, an investment desirous corporation which faces immense competition from other international entities that also issue green bonds would not want to lose out on the opportunity to gain capital and therefore, would not have any choice but to comply with the disclosure and reporting standards.

However, the guidelines also come with a set of challenges. Although the circular provides for the appointment of an independent reviewer, the eligibility criteria for the reviewer have not been clarified. It is suggested that the same shall be laid down since the appointment of an independent reviewer has now been made mandatory. Further, tighter scrutiny for the reviewer would also be required to prohibit bribery and the carrying out of any other corrupt practices.

Furthermore, without any accompanying consequences or penalty, the entities may not even attempt to explain their reasons in their annual report. Therefore, it is suggested that SEBI should also elucidate the consequences of not abiding by the 'comply or explain' provision in the due course of time.

As an additional safety net, it is also recommended that SEBI should classify which projects will qualify as green projects so that any claim of ambiguity on part of the entities may be refuted.

Lastly, it may happen that the same issuer issues more than one green bond, therefore, it is proposed that the requirement of tracking and reporting should be made applicable for each bond separately. This means that the corporation will be required to explicitly state the green projects being funded by each bond. Thus, the bond-by-bond reporting mechanism would enhance the overall effectiveness of the regulations and the purpose sought to be achieved through these regulations.


To conclude it can be said that these guidelines issued by SEBI signal how serious India is to its commitment to developing an ESG Framework in India. Not only that, but it will also help in building the green debt ecosystem in India. The government in January 2023 had also issued Green Sovereign Bonds for the first time. The framework for the same was established in 2022 after the conclusion of Glasgow COP 26.

It is praiseworthy that the SEBI circulars go beyond the green bond principles which are formulated on the idea of good faith and thus add to the robustness of the existing regulatory framework. The regulator is aware that compliance cannot be voluntary because it does not always work on the principle of good faith when capital-hungry entities are competing for investment. These additional compliances will have more benefit than harm and therefore should be appreciated. Though it may be troublesome for the entities as it can increase their cost of compliance, however, less stringent compliances cause entities to circumvent the laws which eventually taints India's image in the eyes of the investor.

Thus, the effort on the part SEBI for bolstering the domestic regime of green bonds is a step in the right direction. It will not only aid in building a green taxonomy in India but will also help India in meeting the goals of sustainable development, thereby attracting pools of international investment in the future.


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