SEBI Tightens Norms for Green Debt Securities, Aligns Framework with ESG Standards

The Securities and Exchange Board of India (SEBI) on Friday, February 27, revised the framework governing the appointment of independent third-party reviewers or certifiers for green debt securities. The move aligns the requirements for green bonds with the broader regulatory architecture applicable to ESG-linked debt instruments.

Mandatory Independent Reviewers

Under the amended NCS Master Circular, issuers of green debt securities must appoint an independent external reviewer or certifier. The reviewer’s role will be to confirm that the issuance complies with regulatory definitions and disclosure standards.

SEBI clarified that the reviewer must:

• Be independent of the issuer and its management
• Be compensated through a conflict-free remuneration structure
• Possess relevant expertise in assessing ESG debt instruments

As per the circular, the external reviewer must ascertain that the green debt issuance meets the definition specified under Regulation 2(1)(q) of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. This includes reviewing certification processes such as:

• Project evaluation and selection criteria
• Categories of projects eligible for green financing
• Alignment with prescribed green definitions

Disclosure Requirements and Global Alignment

The scope of the third-party review must be disclosed in the offer document. SEBI said acceptable formats for such reviews may include:

• Second-party opinions
• Independent verification
• Certification
• ESG scoring or ratings

These frameworks should align with internationally recognised standards, including those recommended by the International Capital Market Association (ICMA).

Part of Broader Sustainable Finance Push

The revision follows SEBI’s earlier expansion of sustainable finance regulations to include social bonds, sustainability bonds, and sustainability-linked bonds — collectively categorised as ESG debt securities. The updated norms take effect immediately.

Understanding ESG: What It Means for Companies and Investors

Environmental, Social, and Governance is a framework used to evaluate a company’s performance beyond financial metrics.

• Environmental: Measures impact on nature, including carbon emissions, energy efficiency, pollution control, and waste management.
• Social: Assesses how companies manage relationships with employees, customers, suppliers, and communities, covering diversity, labour practices, and customer welfare.
• Governance: Evaluates corporate leadership and oversight, including board structure, executive pay, transparency, and ethical standards.

The underlying principle of ESG is that businesses must balance profitability with broader responsibilities toward society and the environment.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.