Capital market regulator Sebi on Monday came out with operational guidelines on green bonds asking issuers to make additional disclosure, pertaining to environmental sustainability objectives of such debt securities in the offer document.
In addition, issuers of green bonds will have to disclose brief details of decision-making process followed for determining the eligibility of projects, for which the proceeds are being raised through issuance of green debt securities, Sebi said in a circular.
Apart from disclosure in the offer document, the Securities and Exchange Board of India (Sebi) has asked the issuer, who has listed green debt securities, to provide certain additional disclosures along with its annual report and financial results.
Also, the issuer will have to appoint a third party reviewer for a green debt security for the post-issue management of the use of proceeds from the green debt security, and verification of the internal tracking and impact reporting. Listing out responsibilities of the issuer, Sebi said that an issuer of green debt securities will have to maintain a decision-making process which it uses to determine the continuing eligibility of the project.
This includes, without limitation statement on the environmental objectives of the green debt securities and a process to determine whether the project meets the eligibility requirements. The guidelines, to be effective from April 1, 2023, have come against the backdrop of increasing interest in sustainable finance in India as well as around the globe, and with a view to aligning the framework for green debt securities with the updated Green Bond Principles (GBP) recognised 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.
With regard to disclosure in the offer document, Sebi said that issuers will be required to apprised about details of the procedures to be employed for tracking the deployment of the proceeds of the issue as well as details related to the perceived social and environmental risks and proposed mitigation plan associated with the project proposed to be financed through the proceeds among others.
In respect of continuous disclosure requirements, the regulator said they need to inform about the utilisation of the proceeds of the issue, as per the tracking done by the issuer using the internal process as disclosed in the offer document. Such utilisation of the proceeds will be verified by the report of an external auditor, to verify the internal tracking method and the allocation of funds towards the project from the proceeds of green debt securities.
Also, the issuers will have to make a disclosure about details of unutilized proceeds including the temporary placement of unallocated and unutilized proceeds from each ISIN of green debt security issued.
With regard to disclosure in the annual report, Sebi said that issuer will have to apprise about methods and the key underlying assumptions used in preparation of the performance indicators and metrics and details of the deployment of the mitigation plan for the perceived social and environmental risks Also, they need to inform on a project-by-project basis, pertaining to reporting the environmental impact of the projects financed by the green debt securities. Further, reporting standards followed by the issuer with regard to reporting environmental impact, if any, would also be disclosed.
The issuer will have to appoint a third-party reviewer for green debt security for the post-issue management of the use of proceeds from the green debt security, and verification of the internal tracking and impact reporting.