ESG Debt Securities: Framework for Issuance and Listing in India

– Payal Agarwal, Partner | corplaw@vinodkothari.com

ESG Debt Securities have been formally recognised in India through its inclusion in the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (‘NCS Regulations’) vide the 3rd Amendment Regulations, 2024. While the term was defined under Reg 2(1)(oa) of the NCS Regulations, the framework for issuance and listing of the same was awaited to be specified by SEBI [Reg 12A of NCS Regulations]. SEBI has, through a circular dated 5th June 2025, notified the framework for issuance and listing of ESG Debt Securities (‘Framework’). The Framework is applicable for issuance of ESG Debt Securities with effect from 5th June, 2025, that is the date of the circular. Further, the Framework is applicable to ESG Debt Securities other than Green Debt Securities (GDS), for which the existing framework specified by SEBI continues to be applicable. Our article SEBI revises framework for green debt securities discusses the same.

In this article, we discuss the meaning of ESG Debt Securities and the Framework as specified by SEBI.

State of the market: ESG Debt Securities in India and the world

Prior to the notification of the 3rd Amendment Regulations and the Framework, only GDS was recognised by SEBI. As per the data available on SEBI’s site, funds worth Rs. 6,953 crores have been raised through issuance of listed GDS between 2017 and 2025 (data as on 30th April, 2025).

However, the ESG debt market of India is not limited to the GDS issued in accordance with the framework laid down by SEBI, but also includes labelled bonds issued in accordance with various globally recognised frameworks. In 2024, the total volume of ESG debt issuance in India was around USD 7 bns, with green bonds occupying a higher portion of the market. 

The IFSC exchanges in India also show an encouraging proportion of ESG-labelled debt securities within the overall debt listing volumes. As on 27th September, 2024, out of total debt listings of USD 59.5 Bn, around ESG‐labelled debt securities amounting to USD 13.07 Bn have been issued on IFSC exchanges. It is notable that the IFSCA (Listing) Regulations, 2024 [and the erstwhile IFSCA (Issuance and Listing of Securities) Regulations, 2021] provides explicit recognition to the ESG debt securities and the framework for issuance and listing of the same.

Globally, the sustainable bond issuance has been showing a continuing growth trend, with the total volume of sustainable bond issuance during 2024 being at USD 1,125 bns.

Meaning of ESG Debt Securities

ESG debt securities, also known as GSS+ bonds globally, are means of raising sustainable finance. The concept of GSS+ bonds has been elaborately discussed in our article Sustainable finance and GSS+ bonds: State of the Market and Developments. In India, the NCS Regulations recognise ESG Debt Securities in the following manner:

Environment, Social and Governance Debt Securities or “ESG Debt Securities” means green  debt securities,  social bonds,  sustainability  bonds,  sustainability-linked  bonds,  or any  other  type  of  bonds,  by whatever  name  called,  that  are  issued  in  accordance  with such international frameworks as adapted or adjusted to suit Indian requirements that are specified  by  the  Board  from  time  to  time,  and  any  other securities  as  specified  by  the Board.

ESG Debt Securities, thus, includes four types of securities, viz.,

• Green debt securities (GDS)
• Social bonds
• Sustainability bonds
• Sustainability-linked bonds

The definition is inclusive in the sense that it permits inclusion of any other kind of bonds that aligns with the requirements laid down under such international frameworks as specified by SEBI (see below). Further, a power is retained by SEBI to specify any other security within the meaning of ESG Debt Securities.

GDS is defined under Reg 2(1)(q) of NCS Regulations. For the other types of bonds included within the meaning of ESG Debt Securities, definition is provided under the Framework.

Social Bonds

The Framework defines Social Bonds as below:

“Social Bonds” means a debt security issued for raising funds, subject to the conditions as may be specified by the Board from time to time, to be utilised for social project(s) that directly aim to address or mitigate a specific social issue and/or seek to achieve positive social outcomes especially but not exclusively for a target population, falling under any of the following categories:

a) Affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transport, energy)

b) Access to essential services (e.g. health, education and vocational training, healthcare,)

c) Affordable housing

d) Employment generation and programmes designed to prevent and/or alleviate unemployment stemming from socioeconomic crises, climate transition projects and/or other considerations for a “just transition” (such provision and/or promotion could include SME financing and microfinance)

e) Food security and sustainable food systems (e.g. physical, social, and economic access to safe, nutritious, and sufficient food that meets dietary needs and requirements; resilient agricultural practices; reduction of food loss and waste; and improved productivity of small-scale producers)

f) Socioeconomic advancement and empowerment (e.g. equitable access to and control over assets, services, resources, and opportunities; equitable participation and integration into the market and society, including reduction of income inequality)

g) any other category, as may be specified by the Board from time to time.

The activities specified in this definition are aligned with the eligible categories of social projects under the ICMA Social Bond Principles.

Sustainability bonds

Sustainability bonds are a mix of green and social bonds. The Framework defines Sustainability bonds as below:

‘Sustainability bonds’ means a debt security issued for raising funds, subject to the conditions as may be specified by the Board from time to time, to be utilised for finance or re-finance of a combination of eligible green project(s) and social project(s) as specified under the definition of green bonds and social bonds respectively.

The term ‘green bonds’ may be used interchangeably with GDS under the NCS Regulations.

Sustainability-linked bonds

Sustainability-linked bonds, a comparatively new and unique instrument, as compared to other ESG labelled bonds, do not link sustainability to the ‘use of proceeds’, rather, sets targets and KPIs with respect to sustainability. The Framework defines the same as:

‘Sustainability-linked bonds’ means a debt security which has its financial and/or structural characteristics linked to predefined sustainability objectives of the Issuer, subject to the condition that such objectives are measured through predefined Sustainability Key Performance Indicators (KPIs) and assessed against predefined Sustainability Performance Targets (SPTs).

Setting out Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs)

Key Performance Indicators are quantifiable metrics used to measure the performance of selected indicators. The issuer is required to disclose KPIs in the offer document, including the definition of KPI(s), associated calculation methodology and benchmark(s) referenced. Further, the offer document shall specify the rationale and process according to which the KPIs have been selected and how the KPIs fit into issuer’s sustainability strategy and addresses relevant environmental, social and/ or governance challenges.

Sustainability Performance Targets (SPTs) linked with the selected KPIs including the definition, calculation methodology and benchmark(s) referenced are required to be disclosed. The approaches to benchmarking for the purpose of target setting exercise has been referenced to the ICMA’s Sustainability-Linked Bonds Principles.

Globally accepted standards recognised

Apart from the definitions given in the Framework for each of the three categories of ESG bonds, the Framework admits the globally recognised frameworks, viz.,

(a) International Capital Market Association (ICMA) Principles / Guidelines

(b) Climate Bonds Standard

(c) ASEAN Standards

(d) European Union Standards

Thus, if the project or activity is aligned with the global standards, it will be deemed to qualify for the respective label in India as well. The relevance of the international standards lie in both – (i) identification of projects or assets that qualify for fund raising through ESG Debt Securities, and (ii) adherence to the obligations as specified in the relevant standards to which the securities are aligned with.

European Union Standards, as referred to as one of the globally recognised standards, currently recognises only green bonds, however, the Framework is applicable to ESG Debt Securities other than GDS, and hence, may not be relevant.

Similarly, in addition to the globally recognised standards, the Framework also permits issuance of labelled bonds for financing of projects or assets aligned with any framework or methodology specified by any financial sector regulator in India, however, no such framework or methodology exists for social, sustainability or sustainability-linked bonds, as on date.

Early redemption if you are not true to label

Majority of debentureholders may force the issuer to pre-redeem. The question is, if there are slippages from the objects/end-use, while the Framework requires the issuer to disclose the breach, the question is, how will the majority express their decision to seek a pre-redemption? Does it mean the issuer will have to call for a waiver of the slippage, or simply wait for the bondholders to seek a premature redemption?

Quantification of negative externalities

Externality, a term well-known in economics, means the damage caused by a company’s activities for which it does not pay, or something positive created by it for which it does not receive payment (Cambridge Dictionary). Negative externalities, of course, would refer to the negative impacts created by the acts of the company for which the company does not make a corresponding compensation for the same.

While sustainable finance is expected to address various negative externalities – be it environmental or social, sometimes, it may also result in creation of certain negative externalities. Negative externalities created by ESG Debt Securities involve the trade off of different ESG goals by prioritizing some ESG issues at the cost of other ESG issues. For instance, a study on the externalities of mandatory ESG disclosure, in the context of mandatory disclosure on targeted poverty alleviation program in China, found significant negative environmental externalities in the form of increased emissions of major pollutants. Hydropower projects in Mekong Basin, funded through issuance of green bonds, caused severe disruption to the essential hydrological patterns and sediment transfers, ecologically important for the sustainability of aquatic life, other negative impacts included severe droughts and floods, negatively impacting local peoples dependent on the river and its tributaries for food and their livelihoods. The increased demand for Electric Vehicles (EVs) as a clean transportation alternative, led to increased mining activities for cobalt, involving engagement of child labour under hazardous conditions.

Third-party independent certifier for ESG Debt Securities

The mandate of engaging a third-party reviewer/ certifier comes with a clarity on who may act as such. The Framework specifies the following minimum eligibility criteria for acting as a third-party independent certifier:

• Reviewer shall be independent of the issuer, its directors, SMP and KMP
• The remuneration of the reviewer should be such that does not result into any conflicts of interest
• The reviewer shall have expertise in assessing ESG Debt Securities

The Framework also refers to the specified globally accepted standards with respect to the forms of the third-party reviewer. In this regard, reference may be made of the following:

• ICMA’s Guidelines for External Reviews specifying the types of external reviews, ethical and professional standards, organisational requirements etc.
• Approved Verifiers under the Climate Bonds Standard on the basis of their competence to conduct the assurance process, including experience in climate change/low carbon related work and financial debt instruments.

Additionally, an ESG Rating Provider registered with SEBI is also eligible to act as a third-party independent certifier subject to the minimum eligibility criteria as specified above.

Concluding Remarks

The Framework formalises the ESG debt market in India, through an enhanced issuers’ accountability coupled with third party certification to boost investors’ confidence, and disclosures regime seeking to curb ‘purpose-washing’. With the growing need of sustainable finance in India, and the funding gap, it is expected that the Framework will encourage both issuers and investors alike, resulting in a flow of funds towards the sustainable development needs of the country.

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