Why In News:

For the purpose of issuing Environmental, Social, and Governance (ESG) debt securities, such as social, sustainability, and sustainability-linked bonds, SEBI has published a comprehensive operating framework.

What are ESG Debt Securities?

· Definition: Financial instruments issued to raise capital exclusively for projects with Environmental, Social, or Governance (ESG) benefits.

· Aimed at promoting sustainable finance in capital markets.

Types of ESG Bonds

Key Features

· Proceeds must fund eligible green/social/sustainable projects only.

· Proper labelling based on the primary objective is mandatory.

· Compliance with internationally recognized ESG frameworks (like ICMA).

· Third-party verification/certification is required.

· Applicable to both public and private debt issuances.

SEBI’s Operational Framework for ESG Debt Securities (from June 5, 2025)

1. Classification Criteria

· Issuers must classify bonds (green/social/sustainability) based on project objectives.

· Clear segregation ensures authenticity of ESG impact.

2. Disclosure Requirements

· Initial Disclosure in Offer Document:

o Project eligibility criteria

o Selection process

o Fund allocation (financing vs refinancing)

· Annual Disclosures:

o Fund utilization

o Impact assessment metrics

3. Independent Review Mechanism

· Issuers must appoint a third-party certifier or reviewer.

· Builds investor confidence and ensures ESG alignment.

4. Monitoring and Impact Tracking

· Continuous tracking of:

o Environmental/Social outcomes

o Transparency in project performance

5. Applicability

· Framework applicable from June 5, 2025

· Covers all ESG debt issuances in Indian markets.

· Aligns with global ESG benchmarks (attracting responsible investment).