State Bank of India (SBI), the country’s largest lender, has published a new ESG financing framework that will apply to future social, green and sustainability-themed SBI bond and loan issuances.
Green bonds put out by SBI have proved divisive in recent years owing to the Mumbai-based public bank’s financial links with the controversial Carmichael coal mine in Australia and its owner, India’s Adani Group. Major investors including Amundi, AXA IM and NNIP have already ditched SBI green bonds over this relationship.
Ulf Erlandsson, head of Sweden’s Anthropocene Fixed Income Institute and former AP4 bond trader, said at the time that financing the Carmichael mine would potentially cancel out any carbon savings derived from SBI’s earlier green bond issuances. “It is crucial that green bonds drive transformational change at the issuer level, not only in the use-of-proceeds part of the bond,” said Erlandsson.
The updated framework will use internal ESG ratings developed by SBI, which covers companies where it has an exposure of at least $12 million for those listed and $6 million for unlisted, to determine use of proceeds. SBI did not indicate whether poor ESG scores may impact eligibility and has been contacted for comment.
SBI has identified 17 eligible green and social project categories for financing, including biodiversity, renewables, water and wastewater management, affordable housing, food security and socioeconomic advancement. All nuclear and fossil fuel-related assets, luxury sector companies and goods, forced labour and activities banned under international law are excluded from the financing framework.
SBI did not include marine mining for metals as an eligible activity in the framework after a similar provision in India’s national green bond standards drew criticism in 2022.
The framework is aligned to the 2021 ICMA green and social bond principles, the 2021 LMA green and social bond principles, and supersedes SBI’s legacy green bond framework. SBI commits to invest proceeds within 24 months from issuance.
Responsible Investor has contacted Amundi, AXA IM and NNIP regarding the prospect of re-admitting SBI green bonds to their products on the back of the revised framework.
Unlike most of the world’s biggest markets, India has yet to formally announce the development of a green taxonomy, although a finance ministry task force has been asked to “suggest” a potential draft. Details of the process and deliberations have otherwise been kept under wraps.
In contrast, Indian finance regulator SEBI has been prolific on ESG in recent years. It issued the first draft regulation for ESG ratings providers worldwide in 2022, a comprehensive ESG reporting regime for corporates a year prior, and is currently mulling the introduction of mandatory audits for ESG disclosures.
The regulator appointed a public-private advisory committee on ESG in May, which includes representatives from BlackRock and SBI.