SEBI Issues Framework for Listing of Social, Sustainability, and Sustainability-Linked Bonds Under ESG Debt Securities [Read Circular]

The Securities and Exchange Board of India (SEBI) issued circular dated June 5, 2025, announcing a comprehensive framework for the issuance and listing of Environment, Social and Governance (ESG) Debt Securities specifically for social bonds, sustainability bonds, and sustainability-linked bonds (excluding green bonds which are already governed by a separate framework).

Key Features of the Circular

Applicability

The circular applies to:

• Issuers of ESG debt securities (except green bonds),
• Stock exchanges,
• Merchant bankers,
• Depositories,
• Debenture trustees,
• ESG rating providers.

Definitions and Scope

• ESG Debt Securities include green, social, sustainability, and sustainability-linked bonds.
• These must comply with international frameworks like ICMA Principles, ASEAN standards, EU standards, and Climate Bonds Standard, as adapted for India.

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Types of ESG Debt Securities

a. Social Bonds

Debt instruments to fund social projects such as:

• Affordable housing and infrastructure,
• Health, education, and employment initiatives,
• Food security and social empowerment.

b. Sustainability Bonds

Used to finance a mix of green and social projects, as defined under green and social bond categories.

c. Sustainability-Linked Bonds

Debt securities where financial terms (e.g., interest rate) are linked to the issuer’s performance on pre-defined sustainability goals, measured through KPIs and SPTs (Sustainability Performance Targets).

Disclosure and Compliance Requirements

For all ESG Bonds:

• Extensive pre-issue disclosures in the offer document (e.g., project details, risks, alignment with standards).
• Post-issue disclosures in annual reports and financial statements (e.g., fund utilization, impact reports).

Third-Party Certification:

• Issuers must appoint independent third-party reviewers or SEBI-registered ESG rating providers to validate compliance, KPIs, and impact.

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Safeguards Against "Purpose-Washing"

SEBI mandates issuers to:

• Avoid misuse of funds or misleading ESG claims.
• Disclose any misuse or mislabeling.
• Possibly trigger early redemption if the debt is misused.
• Quantify negative externalities and avoid selective data representation.

SME Issuers

Entities eligible to list on the SME exchange must also comply with bi-annual ESG disclosures as per Annexures A and B. This framework comes into force from June 5, 2025, for all new issuances of ESG debt securities (excluding green bonds).

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