India’s financial regulator wants to align the country’s sustainable bond framework with international standards to boost domestic demand and participation for eligible securities.
The Securities and Exchange Board of India (SEBI) said that local issuers currently find foreign exchanges more attractive to list green bonds due to a lack of domestic demand and more favourable pricing. Indian companies raised nearly $7 billion through ESG and green bonds in 2021 alone but have raised just $0.5 billion under India’s national green bond framework in the five or so years since its introduction.
A draft update of SEBI’s framework is aligned to the most recent iteration of the Green Bond Principles (GBP) and includes the introduction of a national blue bond standard.
The regulator has listed seven potential activities that may be funded by Indian blue bonds, including sustainable fishing, coral restoration, offshore wind and eco-tourism. There is currently no global standard on blue bond issuances but an ongoing project by ICMA – the issuer of the GBP – and four partner organisations expects to finalise unified guidelines by the end of the year.
In addition, SEBI is seeking feedback on whether investors would be keen to finance government initiatives aimed at meeting its COP26 climate commitments, such as programmes to phase out coal use or ramp up biomass usage, battery storage development and providing access to sustainable cooling.
More broadly, SEBI is considering enhanced requirements for Indian green bonds. These include ongoing reporting of the use of proceeds for instruments either individually or on aggregate basis, disclosure of temporary placement for net proceeds that have not yet been allocated, and disclosure of potential social and environmental risks associated with bonds issued under SEBI’s framework.
The regulator is also mulling the expansion of eligible activities for green bonds to include pollution prevention and control, as well as the circular economy.
The updated framework is aligned to ICMA’s 2021 GBP. Stakeholders have until the end of the month to respond to SEBI.
Central bank recommendations
The move comes soon after the Indian central bank published draft guidance on managing climate risks for domestic financial institutions, which is largely in line with the recommendations of the TCFD. Regulated entities have been advised to put in place appropriate governance structures and processes to effectively manage these risks.
Financial institutions have also been encouraged by the supervisor to adopt a board-approved voluntary green financing target over the short, medium and longer term. The guidelines are open for feedback until the end of September.
A recent survey conducted by the central bank found that most Indian banks have not yet aligned their climate-related financial disclosures with any global standards and that board engagement on climate change and sustainability topics is “inadequate”. This was reflected in the low number of banks which have incorporated ESG or climate KPIs in manager compensation packages.
Indian regulators have been among the forerunners on sustainability topics within emerging markets. In January, SEBI was the first to propose regulation aimed at ESG ratings providers.
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