Sebi proposes new norms for Green Bonds

Capital market regulator Securities and Exchange Board of India (Sebi has proposed new norms for issuance and listing of green bonds, in a bid to help meet huge financing requirements worth $2.5 trillion for climate change actions in India by 2030.

The proposed norms mainly relate to disclosure requirements by the companies intending to issue such bonds, as also to the periodic reporting of fund allocation.

"In addition to reporting on the use of proceeds issuers shall also provide, at least on an annual basis, a list of projects to which Green Bond proceeds have been allocated.

This may also include the details of expected environmental impact of such projects," Sebi said in a draft paper.

The move follows after the board of Securities and Exchange Board of India (Sebi) earlier this week approved a proposal to issue new norms in this regard.

The comments have been invited till December 18.

The regulator said issuance of Green Bonds in India does not require any amendment to the existing Sebi regulations for issuance of corporate bonds, and its Issue and Listing of Debt Securities) regulations.

The issue, listing and disclosure requirements as prescribed under existing regulations for debt securities will continue to be applicable, like any regular corporate bond issuance.

However, for designating an issue of corporate bonds as green bonds, in addition to the compliance with the requirements under the existing regulations, an issuer will have to disclose in the offer document certain additional information about the green bonds, which have been based upon the Green Bond Principles, 2015.

The issuers of green bonds should define and disclose in their offer document, the criteria for identification as 'green', ie, what projects, assets or activities will be considered 'eligible for financing' and quantum of funds to be spent on the projects/assets/activities.

For assigning the status of the bonds as Green, the broad categories of areas where such monies may be invested may be one or more of the following:

  • Renewable and sustainable energy (wind, solar etc)
  • Clean transportation (mass transportation)
  • Sustainable water management (clean and/or drinking water, water
    recycling etc)
  • Climate change adaptation
  • Energy efficiency (efficient and green buildings)
  • Sustainable waste management (recycling, waste to energy etc.)
  • Sustainable land use (including sustainable forestry and agriculture,
    afforestation etc.)
  • Biodiversity conservation

However, Sebi said, it is an indicative list and may include other categories as specified by Board.

Further, an issuer, if proposes to utilise a proportion of the proceeds of the issue of Green Bonds, towards refinancing of existing green assets, it should be clearly provided in the offer document and wherever possible, should also provide the details of the portfolio/assets/projects which are identified for such refinancing.

The issuer of a Green Bond shall provide the details of decision-making process, it will/has followed for determining the eligibility of projects for using Green Bond proceeds. An indicative guideline of the details to be provided is as under:

  • Process followed/ to be followed for determining how the project(s) fit within the eligible Green Projects categories;
  • The criteria, making the projects eligible for using the Green Bond proceeds; and
  • Environmental sustainability objectives.

The proceeds of Green Bonds should be credited to an escrow account, and should be utilised only for the stated purpose, as in the offer document. The use of proceeds should be tracked as per an approved internal policy of issuer and such policy should be disclosed in the offer document/placement memorandum.

The utilisation of the proceeds may also be verified/supplemented by the report of an external auditor, or other third party, to verify the internal tracking method and the allocation of funds towards the projects, from the Green Bond proceeds.

A green bond is like any other bond where a debt instrument is issued by an entity for raising funds from investors.

However what differentiates a green bond from other bonds is that the proceeds of a Green Bond offering are 'ear-marked' for use towards financing green projects.

As of now, there is no standard definition of green bonds and the one that is being currently used is based on market practice, Sebi said.

India's Intended Nationally Determined Contribution document puts forth the stated targets for country's contribution towards climate improvement and following a low carbon path to progress.

"The document also impresses upon the need of financing needs for achieving the stated goals, where a preliminary estimate suggests that at least $2.5 trillion (at 2014-15 prices) will be required for meeting India's climate change actions between now and 2030," Sebi said in the paper.

"In this regard the document talks about the introduction of Tax Free Infrastructure Bonds of Rs 50 billion ($794 million) for funding of renewable energy projects during 2015-16," it added.