The Securities and Exchange Board of India (“SEBI”) vide its circular dated May 30, 2017 (“Circular”) has provided specific guidelines and disclosure norms for the issuance and listing of “Green Debt Securities” (“Green Bonds”), which would now be applicable for issuances of Green Bonds in addition to the SEBI (Issuance & Listing of Debt Securities) Regulations, 2008 (“Debt Securities Regulations”) which is the principal regulation governing the issuance and listing of all debt instruments. Green Bonds are debt securities which are used to raise funds for investments in specified sectors which benefit the environment. SEBI has provided a list of investment avenues which shall be treated as valid end-uses for funds raised via Green Bonds e.g. renewable energy, clean transportation, sustainable water management, climate change adaptation, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation. Prior Position The first listed Green Bonds were issued in India by Yes Bank in February 2015. Although there were no regulations in India which provided for the classification of debt instruments as Green Bonds, Yes Bank voluntarily complied with the Green Bond Policy, 2014 (presently revised to the Green Bond Policy, 2016) (“ICMA Green Bond Policy”), issued by the International Capital Markets Association, which provides for an internationally recognized set of regulatory principles and disclosure norms for the issuance of Green Bonds. The Circular comes in succession to the concept paper released by SEBI on December 3, 2015 on the issuance of Green Bonds in India. The concept paper discussed the benefits of such securities and the additional disclosure requirements which should be adopted by entities issuing Green Bonds. New Position The Circular is framed on the lines of the ICMA Green Bond Policy, and includes: (a) the definition of Green Bonds and the end use restrictions for the funds raised through Green Bond issuances; (b) disclosure requirements in the offer document for such issuances; (c) continuous disclosures (such as end use monitoring and performance indicators) to be made by the issuer; and (d) responsibilities and obligations of the issuer which includes ensuring that the projects funded by Green Bonds meet the documented objectives of the securities. The disclosure requirements the offer documentation include: (i) a statement on environmental objectives of the issuance, details of decision-making process issuer has followed/would follow for determining the eligibility of projects and/or assets for which the proceeds of such issuance will be used; (ii) system/procedures to be employed for tracking the deployment of the proceeds; (iii) details of the projects and/or assets or areas where the issuer, proposes to utilise the proceeds of the issuance, including towards refinancing of existing green project and/or asset; and (iv) details of any globally accepted standards for the issuance of Green Bonds including measurement of the environmental impact, identification of the projects and/or assets, utilisation of proceeds which are being followed for the issuance. Impact & Analysis
Green Bonds provide a feasible means of raising long term debt funding for companies engaged in the green sectors.
The Circular principally embraces the internationally accepted standards set out by the ICMA Green Bond Policy for listed Green Bonds in India. Therefore, the same could be a lucrative investment opportunity for foreign funds with specific mandates in the environmental space, which are looking for a strict regulatory regime in terms of compliance norms.
This Circular provides clarity on Green Bonds which could assist in financing India’s goals stated in its Intended Nationally Determined Contribution (under the United Nations Framework Convention on Climate Change) which documents targets for finance flows consistent with a pathway towards low greenhouse gas emissions and climate- resilient development.
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