SEBI Tightens ESG Debt Regulations, Mandates Third-Party Certification

Moneylife Digital Team 06 June 2025

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has issued an operational framework for the issuance of Environment, Social and Governance (ESG) debt securities. The move aims to improve transparency and facilitate fundraising for sustainable development projects.

Coming into effect from 5 June 2025, the framework brings various instruments, such as social bonds, sustainability bonds and sustainability-linked bonds, under the ESG debt umbrella. The initiative is expected to help bridge the funding gap for achieving the sustainable development goals (SDGs).

According to a circular issued by SEBI, the ESG label will apply only when the proceeds from such debt issuances are directed towards financing or refinancing eligible projects. Issuers must provide comprehensive initial disclosures in the offer document and continue reporting through annual filings or other prescribed regulatory formats.

Entities planning to issue social bonds are required to furnish additional disclosures, including the social objectives of the projects, criteria and processes for determining project eligibility, mechanisms for tracking fund deployment, and a detailed account of the portion of funds allocated to financing versus refinancing. Where refinancing is involved, issuers must disclose the details of outstanding debt.

In a move to enhance credibility and investor confidence, issuers must also appoint an independent third-party reviewer or certifier to verify compliance with internationally recognised ESG standards.

For sustainability bonds, issuers must adhere to the existing regulatory provisions applicable to green debt securities. All projects financed through social or sustainability bonds must conform to the stated objectives, with strict monitoring of fund utilisation.

“Certain social projects may also have environmental co-benefits, and vice versa. Classification should be based on the issuer’s primary objective,” SEBI noted in its circular. The regulator emphasised the need for ongoing evaluation to determine whether the projects continue to meet the intended social or environmental goals.

The new framework aligns SEBI’s regulatory regime with international ESG financing norms and is seen as a step towards attracting a broader base of sustainable investors. It is also expected to deepen India’s green finance ecosystem by encouraging transparent and accountable practices in ESG-labelled debt issuance.

Comments