Circular was issued by SEBI (Securities and Exchange Board of India) dated June 5, 2025, “Framework for Environment, Social and Governance (ESG) Debt Securities (other than green debt securities).” It provides a detailed regulatory framework for issuance and listing of ESG debt securities in India, specifically focusing on social bonds, sustainability bonds, and sustainability-linked bonds, excluding green debt securities which are regulated separately.
1.Scope and Applicability
The circular applies to issuers who have listed or propose to list ESG debt securities labelled as social bonds, sustainability bonds, and sustainability-linked bonds on recognized stock exchanges in India.It supplements existing SEBI regulations, including the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (SEBI NCS Regulations) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR Regulations).
2.Definitions and Types of ESG Debt Securities
- Social Bonds: Debt securities issued to raise funds for social projects addressing specific social issues or achieving positive social outcomes for target populations. Categories include affordable basic infrastructure, access to essential services (health, education), affordable housing, employment generation, food security, socioeconomic empowerment, etc.
- Sustainability Bonds: Debt securities raised for financing or refinancing a combination of eligible green and social projects.
- Sustainability-linked Bonds: Bonds whose financial/structural characteristics are linked to predefined sustainability objectives measured through Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs).
3.Standards and Frameworks
- The funds raised must be aligned with recognized international standards such as:
- International Capital Market Association (ICMA) Principles/Guidelines
- Climate Bonds Standard
- ASEAN Standards
- European Union Standards
- Any framework specified by Indian financial sector regulators1.
4.Disclosure and Reporting Requirements
- Issuers must make detailed initial disclosures in the offer document, including social objectives, decision-making processes for project eligibility, tracking systems for fund deployment, and project details.
- Continuous disclosure obligations include annual reporting on fund utilization and adherence to the relevant international standards.
- Issuers must appoint independent third-party reviewers or certifiers to verify compliance with the framework and claims made regarding the use of proceeds.
5.Responsibilities and Governance
- Issuers must maintain a decision-making process to ensure ongoing eligibility of projects funded by the bond proceeds.
- Funds must be used strictly for the stated social or sustainability purposes.
- Issuers must avoid “purpose-washing,” i.e., making false or misleading claims about the use of proceeds or sustainability impact.
- Transparency is emphasized, including disclosure of any negative externalities and avoidance of misleading labels or cherry-picking data.
- Early redemption of bonds may be required if misuse of funds is detected.
6.Mitigating Risks of Purpose-Washing
- Continuous monitoring of the social/sustainability impact of funded projects.
- Prohibition on use of funds for purposes outside the defined social/sustainability categories.
- Disclosure to investors and possible early redemption if misuse occurs.
- Maintaining high standards consistent with assigned ratings and avoiding false certification claims.
7.Special Provisions for SME Issuers
- Issuers eligible to list on SME exchanges must comply with continuous disclosure requirements bi-annually, ensuring transparency even for smaller issuers.
8.Effective Date and Legal Authority
- The circular is effective from June 5, 2025.
- Issued under SEBI’s powers to protect investors and regulate the securities market under the SEBI Act, 1992 and SEBI NCS Regulations.
This establishes a comprehensive and structured framework for ESG debt securities in India, focusing on social bonds, sustainability bonds, and sustainability-linked bonds.
It mandates strict disclosure, governance, and monitoring requirements to ensure transparency and accountability in the use of proceeds for social and sustainability projects. The framework aligns with international standards and aims to prevent misuse of funds and misleading claims, thereby protecting investor interests and promoting sustainable finance in the Indian debt market.
This regulatory clarity will likely encourage more issuers to tap into ESG debt markets while providing investors with confidence regarding the authenticity and impact of their investments in ESG bonds.
Link for SEBI Circular
