Sebi notifies stronger framework for green bonds; introduces concept of blue, yellow bonds

Markets regulator Sebi on Friday strengthened the framework for green bonds by introducing the concept of 'blue' and 'yellow' bonds as new modes of sustainable finance.

Blue bonds relate to water management and marine sector, while yellow bonds pertain to solar energy. These are sub-categories of green debt securities.

For this, the Securities and Exchange Board of India (Sebi) amended norms governing issue and listing of non-convertible securities, according to a notification.

The amendment came after the board of Sebi approved a proposal in this regard in December.

As per the notification, the watchdog has strengthened the framework for green bonds by enhancing the scope of definition of green debt security by including new modes of sustainable finance in relation to pollution prevention and control and eco-efficient products.

These measures have been taken in the backdrop of increasing interest in sustainable finance in India as well as around the globe, and with a view to align the extant framework for green debt securities with the updated Green Bond Principles (GBP) recognised by IOSCO.

The regulatory framework defines Green Debt Securities as debt securities issued for raising funds that are to be utilised for projects or assets falling under certain categories.

Indian companies raised nearly USD 7 billion through ESG (Environmental, Social and Governance) and green bonds in 2021 compared to USD 1.4 billion in 2020 and USD 4 billion in 2019.

Most of the green bonds issued by Indian issuers are listed on offshore exchanges as issuers are finding it more attractive to list on bourses falling outside Sebi's framework.

The regulator, which came out with a consultation paper in November, mentioned that one of the main hurdles for further growth has been a consistent and robust approach to identifying what is considered 'green'. A lack of clarity in this regard leads to 'greenwashing'.

With regard to the period of subscription, Sebi said a public issue of debt securities or non-convertible redeemable preference shares would be kept open for a minimum of three and a maximum of 10 working days.

In case of a revision in the price band or yield, the issuer would extend the bidding or the issue period disclosed in the offer document for a minimum period of three working days.

"In case of force majeure, banking strike or similar circumstances, the issuer may, for reasons to be recorded in writing, extend the bidding (issue) period disclosed in the offer document," Sebi said.

However, the overall issue period would not exceed 10 working days.

Under the rules, an issuer making issuance of non-convertible securities has the right to recall such securities prior to the maturity date.

As per the notification, the issuer of green bond is required to send a notice regarding recall or redemption of non-convertible securities, prior to maturity, to all the eligible holders of such securities and the debenture trustees at least 21 days before the date from which such right is exercisable.

The issuer would have to simultaneously provide a copy of such notice to the stock exchange, where the non-convertible securities of the issuer are listed, for dissemination on its website.

The issuer and the debenture trustee execute the trust deed, which need to contain a provision mandating the issuer to appoint the person nominated by the debenture trustee as a director on its board within one month from the date of receipt of nomination from the debenture trustee.