On June 5, 2025, SEBI issued a circular (SEBI/HO/DDHS/DDHS-POD-1/P/CIR/2025/84) introducing a comprehensive framework for the issuance and listing of Environment, Social, and Governance (ESG) debt securities, specifically covering social bonds, sustainability bonds, and sustainability-linked bonds. This builds on earlier regulations and expands the scope of ESG financing beyond green bonds.
Scope and Applicability
The framework applies to all ESG-labelled debt securities (excluding green bonds) that are listed or proposed to be listed on recognized stock exchanges in India. It supplements existing provisions under the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).
Classification of Bonds
- Social Bonds – Funds must be directed toward projects addressing specific social issues or generating positive social outcomes. Eligible categories include affordable infrastructure, access to essential services (health, education, housing), employment generation, food security, and socioeconomic empowerment.
- Sustainability Bonds – Financing/refinancing a mix of eligible green and social projects.
- Sustainability-linked Bonds (SLBs) – Bond characteristics are tied to predefined sustainability goals of the issuer, measured against Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs).
Issuers must align projects with recognized international standards such as ICMA Principles, Climate Bonds Standard, ASEAN Standards, EU Standards, or relevant Indian regulatory frameworks.
Disclosure and Reporting Requirements
Issuers face extensive disclosure obligations:
- Pre-issuance (Initial Disclosure): Social objectives, target beneficiaries, project eligibility criteria, taxonomies used, fund deployment mechanisms, refinancing details, and risk mitigation plans.
- Continuous (Post-Listing): Annual reporting on fund utilization, unutilized proceeds, social or sustainability impact assessment, performance indicators (both qualitative and quantitative), and mitigation outcomes.
For SLBs, issuers must also disclose rationale, KPI definitions and methodologies, alignment with sustainability strategy, timelines for SPTs, variation triggers for financial terms, fallback mechanisms, and exceptional event considerations.
Independent Review and Certification
A critical safeguard is the requirement to appoint an independent third-party reviewer/certifier (or a SEBI-registered ESG rating provider) to validate:
- Alignment with recognized standards.
- Evaluation and selection process of projects.
- Impact reporting and tracking of fund utilization.
- Relevance and credibility of KPIs and SPTs (in case of SLBs).
This measure is aimed at enhancing credibility and investor confidence.
Avoiding Purpose-Washing
SEBI stresses safeguards against “purpose-washing” (misrepresentation of bond objectives). Issuers must:
- Ensure proceeds are used strictly for stated purposes.
- Continuously monitor and disclose outcomes.
- Avoid misleading labels or selective disclosures.
- Quantify negative externalities and disclose corrective actions.
- Undertake early redemption if misuse of proceeds is detected.
Applicability to SME Issuers
SME issuers of ESG securities must comply with bi-annual continuous disclosure requirements, ensuring transparency is maintained across market segments.
Effective Date
The framework comes into force June 5, 2025, applying to all ESG debt securities issued thereafter.
Conclusion
SEBI’s framework significantly strengthens India’s ESG financing ecosystem by setting clear definitions, disclosure requirements, and accountability mechanisms for social, sustainability, and sustainability-linked bonds. By aligning with global standards while adapting to Indian needs, the framework aims to promote transparent, credible, and impactful ESG investments, reduce risks of mislabelling, and safeguard investor interests.
