Sebi Blue Bonds: Mode of sustainable finance - All you need to know about proposal

Markets regulator Sebi has proposed the concept of blue bonds as a mode of sustainable finance, saying such securities can be utilised for various blue economy-related activities, including oceanic resource mining and sustainable fishing.

Also, the watchdog has suggested strengthening the framework for green bonds by amplifying the definition of green debt securities and enhancing disclosures, according to a consultation paper.

The proposals are aimed at aligning with the updated Green Bond Principles (GBP) published by the International Capital Market Association (ICMA).

Since the framework of green debt securities was laid down by the Securities and Exchange Board of India (Sebi), there have been multiple events in the sustainable finance space around the world, thereby necessitating a review in the Indian context, as per the consultation paper issued on Thursday.

"India has tremendous scope for deployment of blue bonds in various aspects of the blue economy" like oceanic resource mining, sustainable fishing, national offshore wind energy policy and in the area of blue flag beach eco-tourism model that provide the tourists clean and hygienic bathing water facilities, it said.

According to the World Bank, the blue economy is the "sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystem".
India has a 7,500 kilometre-long coastline and 14,500 kilometres of navigable inland waterways, and the development of the blue economy can serve as a growth catalyst.

At present, the blue economy comprises 4.1 per cent of India's economy, Sebi said.

Further, the regulator has suggested adding two categories -- pollution prevention and control and circular economy adapted products -- as eligible green projects.

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

The regulator has suggested that the issuer should inform investors about the intended types of temporary placement for the balance of unallocated net proceeds. Also, the utilisation of proceeds from each issue of GDS made by an issuer should be tracked and disclosed separately.

In addition, the issuer should disclose any taxonomies, green standards or certifications, if referenced in the project selection.

As per Sebi, the issuers should disclose information pertaining to reporting of the environmental impact of the projects financed by the green debt securities. This will enable investors to gather information pertaining to the impact of the project on the environment, it added.

In order to enhance disclosure requirements for refinancing of projects through GDS, Sebi said that in the event that all or a proportion of the proceeds are to be used for refinancing, then the issuers should provide an estimate of the share of financing and refinancing.
Besides, they should clarify which project portfolios may be refinanced and the expected look-back period for refinanced eligible green projects.

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 noted 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 which is defined as the practice of channeling proceeds from green bonds towards projects or activities having negligible or negative environmental benefits, it added.