Sebi clears new norms for issuance, listing of green bonds

Move is aimed at helping meet huge financing requirements worth $2.5 trillion for climate change actions in India by 2030

To help companies raise funds through green bonds for investment in renewable energy space, regulator Sebi today approved new norms for issuance and listing of such securities in the stock market.

The move is aimed at helping meet the huge financing requirements worth $2.5 trillion for climate change actions in India by 2030.

The new norms, which were approved by Sebi's board at a meeting here today, would also help the investors take informed investment decisions and bring in uniformity in the disclosure requirements, the regulator said in a statement.

Sebi said the financing needs of renewable energy space in the country requires new channels to be explored which can also help in reducing the cost of the capital.

The new norms have been finalised after taking into account public comments to a draft paper issued by Sebi in this regard last month. A decision to start the consultation process was taken in Sebi's last board meeting on November 30, 2015.

The regulator said the issuance and listing of green bonds will be governed by the Sebi regulations for debt securities but the issuer of green bonds would have to make incremental disclosures. The definition of green bonds would be specified by Sebi from time to time.

The new norms also provide for requirement of independent third party reviewer, certifier or validator for reviewing, certifying and validating the pre-issuance and post-issuance process including project evaluation andselection criteria. However, this has been kept optional.

Sebi also said that an escrow account would not be mandatory for issuance of such bonds, but issuer will have to provide the details of the systems and procedures to be employed for tracking the proceeds of the issue, including the investments made and earmarked for eligible projects. The same would need to be verified by the external auditors.

Issuer would have to make disclosures including use of proceeds,listofprojectstowhich Green Bond proceeds have been allocated inthe annual report and periodical filings made to the stock exchanges.

The draft paper had earlier proposed that the proceeds of Green Bonds be credited to an escrow account and will be utilised only for the stated purpose, as in the offer document.

A green bond is like any other bond where a debt instrument is issued by an entity for raising funds from investors.

However what differentiates a green bond from other bonds is that the proceeds of a Green Bond offering are 'ear-marked' for use towards financing green projects.

As of now, there were no standard norms for green bonds.
India's Intended Nationally Determined Contribution

document puts forth the stated targets for country's contribution towards climate improvement and following a low carbon path to progress.

"The document also impresses upon the need of financing needs for achieving the stated goals, where a preliminary estimate suggests that at least $2.5 trillion (at 2014-15 prices) will be required for meeting India's climate change actions between now and 2030," Sebi said.

Further, India has embarked upon an ambitious target of building 175 gigawatt of renewable energy capacity by 2022 and this requires a massive estimated funding of $200 billion.

The broad categories of areas where money raised from green bonds may be invested are climate change adaptation; renewable and sustainable energy; clean transportation, sustainable waste and water management and biodiversity conservation.

India has lately seen issue of Green Bonds by some entities -- Yes Bank, CLP India, Exim Bank of India and IDBI Bank.

According to Sebi, green bonds can help in enhancing an issuer's reputation and such issuance can attract wider investor base and this may in turn benefit the issuers in terms of better pricing of their bonds compared to a regular bond.