SEBI Expands Sustainable Finance Framework With New ESG Debt Instruments

The Securities and Exchange Board of India (SEBI) has announced a significant expansion to its sustainable finance framework, unveiling plans to introduce a range of new financial instruments. This includes Social Bonds, Sustainable Bonds, and Sustainability-linked Bonds, alongside the existing green debt securities. 

In a consultation paper released on Friday, SEBI outlined how these new instruments—collectively known as ESG Debt Securities—will offer issuers enhanced flexibility to fund projects aligned with environmental, social, and governance (ESG) goals. This move is designed to address the funding gap for the Sustainable Development Goals and support a wider array of sustainable initiatives. 

The proposal comes in response to feedback from market participants, including the Confederation of Indian Industry, advocating for an expanded framework. The addition of Social Bonds, alongside the current Green Debt Securities, aims to align with global practices and broaden the scope for sustainable finance. 

SEBI's consultation paper also suggests the introduction of Sustainable Securitised Debt Instruments, allowing issuers to leverage credit facilities within international or domestic sustainable finance frameworks. This development will also provide investors with new opportunities to engage in sustainable securitised debt. 

To ensure transparency and credibility, SEBI recommends that issuers of these new instruments include initial disclosures in the securities' offer documents and continuous disclosures in annual reports or other mandated formats. The paper also suggests the appointment of independent external reviewers or certifiers, which could involve second-party opinions, verification, certification, or scoring/rating. 

SEBI is seeking public comments and suggestions on the consultation paper, with responses due by September. This initiative represents a significant advancement in India’s sustainable finance sector, aiming to align with international standards and enhance funding for sustainable projects.