Sebi notifies stronger framework for green bonds

Subject : Economy

Concept :

Markets regulator Sebi on Friday strengthened the framework for green bonds by introducing the concept of ‘blue’ and ‘yellow’ bonds as new modes of sustainable finance.
Blue bonds relate to water management and marine sector, while yellow bonds pertain to solar energy.
These are sub-categories of green debt securities.
These measures have been taken in the backdrop of increasing interest in sustainable finance in India as well as around the globe, and with a view to align the extant framework for green debt securities with the updated Green Bond Principles (GBP) recognised by IOSCO.

Green Bond Principles

The Green Bond Principles (GBP) seek to support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.
GBP-aligned issuance should provide transparent green credentials alongside an investment opportunity.
The GBP, updated as of June 2021, are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond.

Green Bonds

A green bond is a fixed-income instrument designed to support specific climate-related or environmental projects.
The phrase “green bond” is sometimes used interchangeably with “climate bonds” or “sustainable bonds.”
Green bonds can finance various projects, most often related to renewable energy (e.g. wind, solar, hydro), recycling, and clean transportation. More specifically, examples of projects financed with green bonds include: Renewable Energy. Energy Efficiency.
Green bonds are asset-linked and backed by the issuing entity’s balance sheet. They work just like any other corporate or government bond.
They are used to finance projects aimed at sustainable agriculture, pollution prevention, fishery and forestry, clean water and transportation, along with environment friendly water management projects.

Current regulatory framework

Green bonds are a form of infrastructure financing and the Securities and Exchange Board of India (“SEBI”) had issued a concept paper on the same in 2015.
Such instruments were covered within the ambit of general debt securities and were regulated by SEBI as such, along with the related compliances for general debt securities – i.e compliance with provisions of the Companies Act, 2013, mandatory listing as per SEBI regulations, disclosures etc.
In the 2017 circular, SEBI proposed a definition of ‘green debt securities’ as part of its regulations.
A debt security could be considered ‘green’ or a ‘green debt security’ if the funds raised through such issuance were to be utilized for projects/ assets categorized broadly as follows, which list could be added to / changed by SEBI from time to time.