Sebi to expand scope of ESG finance framework to more products: Report

By Ishika Mookerjee

India’s market regulator intends to expand the scope of its sustainable finance framework to include more products, a potential boost to ESG-labeled instruments in Asia.

The Securities and Exchange Board of India will consult on introducing social bonds, along with sustainable and sustainability-linked bonds, to the current suite of environmental, social and governance debt.

Plans also include adding eligible asset-backed securities and a requirement for independent external reviews of all ESG debt, according to a consultation paper released Friday.

“The proposal is a positive move for the market,” said Xuan Sheng Ou Yong, sustainable fixed income lead for Asia Pacific at BNP Paribas Asset Management in Singapore. “It means we may have different opportunities to direct fixed income capital towards new issuers and their projects, beyond green bonds.” 

India’s issuance of ESG debt this year has touched $15.6 billion, surpassing a previous annual record in 2021, according to data compiled by Bloomberg Intelligence. However, the volume remains lower than other key markets in Asia, including China and Japan. 

An existing regulatory framework covers products that raise proceeds for use only in relation to environmental sustainability — such as renewable energy or water management — meaning the proposed changes will allow issuers to seek debt for a broader range of activities, Sebi said in its document. The regulator will continue its consultation to Sept. 6.

If the consultation results in a change to the current framework, Sebi will be able to regulate onshore bonds. Some major Indian companies, including units of Adani Group, have begun issuing sustainability-linked and social bonds in foreign currency either via private placement or listings elsewhere.

A stronger market in India for ESG debt would support Prime Minister Narendra Modi’s wider focus on green growth. It would also help counteract a slowdown in Chinese issuances that’s weighing on the global market. 

The overall volume of ESG-labeled bonds fell about a third in the second quarter compared to the same period a year ago, Sustainable Fitch said last month.