The Securities and Exchange Board of India (Sebi) on Thursday issued a concept paper on "green bonds", which would enable corporate groups to raise capital for environment-friendly purposes.
Green bonds are like ordinary corporate bonds but with one major difference: They are used to fund projects that help in reducing the carbon footprint. Sebi has proposed ways to monitor the use of funds that have been raised in this way.
"An issuer shall have to disclose in the offer document following additional information about the green bonds," stated the Sebi discussion paper. However, experts feel without incentives, companies won't be attracted to the segment.
"Though Sebi's initiative seems like a step in the right direction, but without any incentives or differential treatment, there won't be many takers for these bonds. We will have to wait for the ministry and central bank to decide on incentives because currently Sebi discussion paper is more regulatory rather than promoting the market," said Ajay Magnulia, head of fixed income at Edelweiss Securities.
Sebi in the concept paper has proposed that the issuer would have to disclose the criteria for selection of green projects. Sebi has proposed a list of eligible practices based on international practices which includes renewable energy, clean transport, sustainable water management and climate change management, among others.
Sebi has stated that the proceeds of green bonds will be credited to an escrow account, and shall be utilised only for the stated purpose, as in the offer document.
"The use of proceeds shall be tracked as per an approved internal policy of issuer and such policy shall be disclosed in the offer document," said the Sebi concept paper.
Additionally, the issuer would have to report the expected environmental impact of the said project.
The need for a sustainable regulatory environment for these bonds is needed in the backdrop of increased world focus on decreasing the carbon footprint.
"India will fulfil expectations from it and its responsibilities...the country is working to take forward development and (protecting) environment together," said Prime Minister Narendra Modi at a joint press event with US President Barack Obama at the recently concluded UN summit on climate change in Paris.
The past two years the global fund-raising through green bonds has been on a high. The year 2013 saw participation from corporate sector, which substantially increased in 2014. This has led to overall growth in the fresh issuance of green bonds, where the market has almost tripled in size between 2013 and 2014, with around $37 billion issued in 2014. It is expected that volumes would be double this year.
The discussion also outlined that all Indian issuances had raised funds overseas. YES Bank's green bond issue was subscribed by International Finance Corporation, Exim Bank's issue proceeds were used to fund projects in Sri Lanka and Bangladesh. In IDBI Bank's green bond issue, 82 per cent of the book was subscribed by Asia and rest 18 per cent by Europe.