Sebi’s stricter ESG Debt Rules May Deter Mid-Sized Firms

The Securities and Exchange Board of India’s (Sebi’s) Circular, Effective 5 June, AIMS to Combat “Purpose-Washing” or the Misreprestation or Exaggeration of the Social or ENVIRONMENTANL Intent Proceeds. The framework to ensure soch debt issues remain aligned with cleaned and measurable goals brings brings India’s Regulatory Stance Closer to Global Standards.

“By incorporating factors like Third-Party Verification, Comprehensive Disclosures About The Issuer Decision-Making Process, Project Selection and Deployment, BRINS A LOT of CECONTABITY OND These Securities and acts as a curch-needed confidence-building measure for investors, “said Swati Agrawal, Chief Executive Officer and President at Careedge Advisery. “Mandatory Requirement of Third-Party Review/Certification is the Right Step to Address Growing Concerns on Green-Washing of Claims Made by ISSUrs.”

Agrawal, however, warned that the capacity to meet such detailed obligations is Uneven across India Inc., with Mid-Sized Firms Still Finding Them Dificult. “While Large Companies are Well-Positioned to Undertand These Concepts and Requirements Around Them, Mid-Size Companies Still Find these Tasks ONEROUS and Less Value-CCREVEVE.”

The compliance requirements, especially for Sustainability-Linked Bonds (SLBS), Tied to Key Performance Indicators (KPIS) and Sustainability Performance Targets (SPTS) Both Technically Complex and Financially BurdenSome for Smaller Firms. “This trade-off needs to be balanced by a regulator,” Agrawal Said, Advocating a Consultative Process with Market Participants for Continuous Review to make the instrances atraracttivate.

The State Bank of India (SBI) Raised over 30,000 Crore Through Social Bonds in 2024, Placing It Among the Top Global Non-Sovereign issuers, according to the Climate Bonds Initiative. Continuum Green Energy ( 56.8 trillion), recipe ltd ( 4,300 Crore), DME Development Ltd ( 775 Crore), and Pimpri Chinchwad Municipal Corporation ( 200 Crore) Also Raised Funds by Issuing Green Bonds Last Year, Showed Data Provided by ICra Ltd.

Separately, sebi data as of 30 april showed that l & t infrastructure finance raised 667 Crore Via Green Bonds, While Municipal Corporations Such as Vadodara and Ahmedabad Issued Green Bonds Worth 100 Crore and 200 Crore, respectively.

Shriram Finance ($ 500 Million) and Indiaibulls Housing ($ 350 Million) Tapped The Global Markets for Social Bonds, ICRA DATA Showed, Reflecting Growing Growing PRIVATE SECTOR SECTOR PARTICPATOR PARTICPATORE in ESG-Linked Funding.

Third-party review

Legal Experts Warn That While The New Framework Elevates The Integrity of ESG Claims, it may inadvertent Meaningfully.

“The Standards to be followed by entities for investment in green and ecologically sustainable technology are prohibitively expected,” said radika m. dudhat, partner at Shard Radul Amarchand Mangaldas & Co. “This Financial Barrier Inventivized Companies to Claim Es Alignment Without Making The Necessary Investments, leading to purpose-washing.”

Regulatory diligence needs to be matched with rigorous scrutiny, dudhat said. “While an entity may be esg compliant ‘on-paper’, it is important to ascertain whichera or not they are creating a False Narrative of Complying with the Applicable Regulatory Framework

To mitigate this, she emphasized the role of lending institutions like banks and investment companies in reviewing and verifying compliance with a complete chain of data and documentation.

The new circular also Mandates Quantiification of Negative External Extension and Early Redemption Provisions in Case of Deviation from stated ESG Objectives. Issuers will have to appoint independent third-party reviewers to Verify Alignment and Monitor Progress.

While this strengthens governance, experts believe that regulatory guidance must be paired with ecosystem-achiem-achl support.

“Emphasis can be given on capacity building at the industry assoctions level, sharing of best practices and guidance at knowledge forms and regular reviews of there, there is frmewors and their face Agrawal.

Sebi’s framework could also serve as a guidebook for issues if supported with targeted assistance, ESG Assessment Firms said. “Having clear guidance on which esg debt instrument suits their fund requires will help in aligning with their corporate ESG Strategies or Objects,” Said Amishi Kapadia, Partner AT deloottete India.

“For a Fundraise, Issuers May Need Support for Selection of Eligible Projects or Key Performance Indicators (KPIS) or Sustainability Performance Targets (SPTS) to ENSURE ALIGNMENT White Global Frameworks, “She said.

Closer to Global Standards

Experts Agree That Framework Moves India Closer to International ESG Standards by Enforcing Third-Parthy Validation and Mandating “True to Label” Financing.

“In a Well-Regulated Environment, The Third-Party reviewers Acked as Independent Gatekeepers Ensuring that Esg-Labelled Instruments are genuinely aligned with For Reputational Gain, “Said Sheetal Sharad, Chief Rating Officer at ICRA ESG Ratings.

However, she also warned that issuers face systemic challenges in building out ESG Infrastructure. “A key gap lies in capacity building and awareness, especially among entities with lower ESG Maturity, Who May Lack the Internal Experiment to Navigate Complex requirements. “

Without standardized disclosure norms, reporting can become fragmented, sharad said. “The Role of an independent revolution is especially Valuable, as it can enhance credit, enjoy alignment with best practices, and provide assurys to investors and stakes and stake of ESG Commitments. “