SEBI’s New Green Bond Rule: What’s Being Hidden in the Fine Print?

Strengthening Accountability in India’s Green Finance Landscape

India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), has mandated that issuers of green debt securities appoint independent third-party reviewers or certifiers to oversee post-issuance activities. This directive, effective from April 2023, is part of SEBI’s broader push to align domestic green finance practices with global standards and ensure transparency in the use of proceeds from green bonds.

The move comes amid rising investor interest in sustainable finance and growing concerns over greenwashing, where funds raised through green instruments are misallocated or lack measurable environmental impact.

 

Key Highlights of SEBI’s Directive

- Issuers must appoint third-party reviewers for post-issue management of green bond proceeds

- Reviewers will verify internal tracking systems and impact reporting mechanisms

- The requirement applies on a ‘comply or explain’ basis for two years

- SEBI has updated disclosure norms to include project-level environmental impact data

- Issuers must specify the reporting standards used for green debt instruments

 

Scope and Implementation Timeline

The new mandate applies to all entities issuing green debt securities under SEBI’s framework. These include corporates, financial institutions, and government bodies tapping into India’s growing green bond market.

- The directive is applicable from April 2023 onward

- Issuers must engage third-party reviewers both pre- and post-issuance

- Pre-issuance review includes validation of the green bond framework and project selection criteria

- Post-issuance review covers tracking of proceeds and verification of environmental outcomes

- SEBI will monitor compliance and may require explanations from non-adhering entities during the two-year transition period

 

Rationale and Global Alignment

SEBI’s updated guidelines aim to enhance investor confidence and reduce reputational risks associated with green finance.

- Aligns India’s green bond framework with the Green Bond Principles recognized by IOSCO

- Addresses past concerns over misuse of green bond proceeds in global markets

- Encourages science-based taxonomy and eligibility criteria for green projects

- Supports India’s climate goals and energy transition roadmap by ensuring credible financing mechanisms

 

Market Reaction and Industry Feedback

The announcement has been welcomed by ESG-focused investors and sustainability advocates.

- Analysts believe the move will improve the quality and credibility of Indian green bonds

- Institutional investors are expected to increase participation due to enhanced transparency

- Issuers may face higher compliance costs but benefit from improved market access

- Industry bodies are preparing to submit feedback during SEBI’s consultation window

 

Conclusion: A Step Toward Responsible Green Capital Markets

SEBI’s directive to appoint third-party auditors for green bond issuers marks a decisive step in building a robust and trustworthy green finance ecosystem in India. By enforcing independent verification and detailed disclosures, the regulator is laying the groundwork for sustainable capital flows that genuinely contribute to environmental goals. As the market matures, these measures will be critical in attracting global capital and ensuring long-term credibility.

 

Source: ThePrint, LiveMint, IEEFA