SEBI’s Operational Framework for ESG Debt Securities

Source:  ET

Context: SEBI has notified a detailed operational framework for issuing Environmental, Social, and Governance (ESG) debt securities, including social, sustainability, and sustainability-linked bonds.

About ESG Debt Securities:

• What are ESG Debt Securities?
  • ESG debt securities are financial instruments used to raise funds exclusively for projects with environmental, social, or governance benefits. These include:
    • Social Bonds (for social impact projects)
    • Sustainability Bonds (for combined environmental and social goals)
    • Sustainability-Linked Bonds (with targets linked to ESG performance)
  • Key Features of ESG Debt Securities:
    • Funds must be utilized for eligible sustainable or social projects.
    • Bonds must be labelled accurately based on primary project objective.
    • Must comply with recognized international ESG standards.
    • Require third-party verification or certification.
    • Applicable to both public issues and private placements.

About SEBI’s Operational Framework for ESG Debt Securities:

• Classification Criteria: Issuers must classify bonds as green, social, or sustainability based on the primary objective of the underlying projects, ensuring clear demarcation of impact.
• Disclosure Requirements:
  • Initial disclosures in the offer document must include project eligibility, selection process, and indicative fund distribution between financing and refinancing.
  • Continuous disclosures to be made annually, detailing impact metrics and fund utilization.
• Independent Review Mechanism: Issuers must appoint independent third-party reviewers or certifiers to validate ESG alignment, increasing investor trust and transparency.
• Monitoring and Impact Tracking: Issuers are responsible for continuous impact assessment to ensure that the funded operations effectively reduce environmental or social harm.
• Applicability and Implementation: The framework applies to all issuances of ESG debt securities from June 5, 2025, and aligns with global ESG benchmarks to attract responsible capital.