SEBI Releases ESG Debt Framework for Social, Sustainability, and Sustainability-Linked Bonds

As sustainability financing continues to expand across global markets, India is advancing its regulatory infrastructure with new rules targeting ESG debt instruments beyond green bonds.

The Securities and Exchange Board of India (SEBI) has introduced a formal framework for ESG-labelled debt securities, excluding green bonds. Effective from 5 June 2025, the framework outlines regulatory requirements for issuers of social, sustainability, and sustainability-linked bonds (SLBs) that are listed or proposed to be listed on a recognised stock exchange.

Scope and Alignment

Debt securities may be labelled as ‘social bonds’, ‘sustainability bonds’, or ‘sustainability-linked bonds’ only if the proceeds are intended for projects aligned with recognised standards – such as the ICMA Principles, Climate Bonds Standard, ASEAN or EU Standards, or frameworks designated by Indian financial regulators. Issuers must ensure that this alignment applies to the use of proceeds for social and sustainability bonds or to the sustainability performance targets in the case of SLBs. These requirements are in addition to obligations under SEBI NCS and SEBI LODR Regulations.

Social and Sustainability Bonds

Social bonds must finance or refinance projects that directly address or mitigate specific social issues and aim to achieve positive social outcomes, especially for a target population. Eligible categories include affordable basic infrastructure, access to essential services, affordable housing, employment generation and just transition activities, food security, and socioeconomic advancement and empowerment.

Sustainability bonds are defined as instruments used to finance or refinance a combination of eligible green and social projects, following both green and social bond criteria.

Issuers of these bonds must disclose the objectives of the financed projects, the processes for evaluating and selecting eligible projects, and plans to track proceeds and address social risks. After issuance, annual reports must include detailed disclosures on fund utilisation, descriptions and impacts of funded projects, qualitative and quantitative performance metrics, and updates on unutilised proceeds.

Sustainability-Linked Bonds (SLBs)

SLBs are defined as debt instruments with financial or structural characteristics linked to predefined sustainability objectives. These objectives must be measured through specific KPIs and benchmarked against Sustainability Performance Targets (SPTs).

Disclosures must include the issuer’s sustainability strategy, rationale for selecting KPIs and SPTs, calculation methods, timelines, structural implications of target achievement, fallback mechanisms, and mitigation strategies addressing factors outside the issuer’s direct control. Issuers must provide annual updates on KPI performance and third-party verified reports on the fulfilment of SPTs.

Assurance and Oversight

Issuers of ESG-labelled debt securities are required to appoint an independent third-party reviewer or certifier. Reviewers must be free from conflicts of interest and possess relevant ESG expertise. Their responsibilities include verifying the bond’s alignment with recognised standards, reviewing tracking systems, and evaluating impact reporting. SEBI-registered ESG rating providers are also eligible to act as certifiers.

Mitigating Purpose-Washing

To mitigate the risk of purpose-washing, the framework mandates ongoing monitoring to assess whether funded activities are delivering the intended social or sustainability outcomes. It prohibits misleading labels, requires transparent disclosure of trade-offs, and mandates quantification of negative externalities where feasible. Issuers must disclose any material misalignments and, if required by a majority of debenture holders, initiate early redemption of such bonds.

Applicability

The framework applies to ESG-labelled bonds issued on or after 5 June 2025. Issuers eligible to list on SME exchanges must adhere to the post-listing disclosure requirements bi-annually, as set out in the circular.