Capital markets regulator Sebi has listed the basic dos and don'ts relating to green debt securities to address 'greenwashing' related risks. The generally accepted definition of 'greenwashing' is, 'making false, misleading, unsubstantiated, or otherwise incomplete claims about the sustainability of a product, service, or business operation'.

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To address the concerns of market participants regarding greenwashing, Sebi said that an issuer of green debt securities will have to ensure that it will not use misleading labels, hide trade-offs, or cherry-pick data from research to highlight green practices and will maintain the highest standards associated with the issue of green debt security while adhering to the rating assigned to it.

While raising funds for transition towards a greener pathway, the issuer of green bonds will continuously monitor to check whether the path undertaken towards more sustainable form of operations is resulting in reduction of the adverse environmental impact and contributing towards sustainable economy, as envisaged in the offer document to avoid greenwashing risks, the regulator said in a circular.

The issuer will not utilize funds raised through green bonds for purposes that would not fall under the definition of 'green debt security' under the rules. In case any such instances come to light regarding the already issued green debt securities, the issuer will disclose the same to the investors and, if required, by majority of debenture holders, undertake early redemption of such debt securities.

The green bond issuer will quantify the negative externalities associated with the utilization of the funds raised through green debt security and will not make untrue claims giving false impression of certification by a third-party entity.

The new framework will come into force with immediate effect, the Securities and Exchange Board of India (Sebi) said in a circular on Friday. This came after the regulator strengthened the framework for green bonds by introducing the concept of 'blue' and 'yellow' bonds as new modes of sustainable finance in relation to pollution prevention as well as control and eco-efficient products.

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

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) recognized 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.

 

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