Executive Summary:
This circular, effective immediately from February 3, 2023, addresses concerns regarding greenwashing in green debt securities. It outlines "dos and don'ts" for issuers to ensure transparency and prevent misleading claims about the sustainability of their projects. The circular introduces Chapter IXA to the Operational Circular, reinforcing disclosure requirements and investor protection.
Key Points / Main Content:
* **Background and Context:**
* Regulation 21q of the SEBI NCS Regulations, 2021, defines green debt security.
* Chapter IX of the Operational Circular outlines disclosure requirements.
* Recent reviews and stakeholder consultations led to changes in NCS Regulations (February 2, 2023) to address greenwashing concerns.
* Greenwashing is defined as making false, misleading, unsubstantiated, or incomplete claims about sustainability.
* **Requirements for Issuers of Green Debt Securities:**
* Continuously monitor and verify that sustainable operations reduce adverse environmental impact.
* Utilize funds raised only for projects falling under the definition of green debt security as per NCS Regulations.
* Disclose any misuse of funds to investors and undertake early redemption if required by a majority of debenture holders.
* Avoid misleading labels, hiding tradeoffs, or selectively using data to misrepresent green practices.
* Maintain the highest standards associated with the issue of green debt securities, adhering to assigned ratings.
* Quantify negative externalities associated with the utilization of funds raised through green debt securities.
* Avoid making untrue claims implying false third-party certification.
* **Implementation and Authority:**
* The circular is effective immediately and will be appended as Chapter IXA of the Operational Circular.
* The circular is issued under Section 11(1) of the SEBI Act, 1992, and Regulation 55(1) of the SEBI NCS Regulations, 2021.
Impact Analysis:
* **Issuers of Green Debt Securities:**
* Impact: Issuers must adhere to the specified guidelines to avoid greenwashing and ensure transparency in utilizing funds raised through green debt securities.
* Action Required: Implement monitoring mechanisms, ensure proper fund allocation, enhance disclosure practices, and avoid misleading claims.
* **Investors:**
* Impact: Investors are better protected against greenwashing, with increased transparency and recourse options in case of misuse of funds.
* Action Required: Monitor issuer disclosures, exercise their rights as debenture holders, and demand early redemption if necessary.
* **Securities Market:**
* Impact: Promotes the development of and regulates the securities market by increasing investor confidence in green debt securities.
* Action Required: N/A
Key Entities Referenced
Securities and Exchange Board of India Act, 1992: The act under which the circular is issued, specifically Section 111, granting powers to protect investors and regulate the securities market.
SEBI Issue and Listing of NonConvertible Securities Regulations, 2021: Regulations referred to as NCS Regulations, which define green debt security and are used as the basis for this circular.
Operational Circular for issue and listing of NonConvertible Securities NCS, Securitised Debt Instruments SDI, Security Receipts SR, Municipal Debt Securities and Commercial Paper CP dated August 10, 2021: A circular that provides initial and continuous disclosure requirements for entities issuing green debt securities. It is being amended by this circular.
Green Debt Securities: Debt securities that are defined under the NCS Regulations and are the subject of this circular to avoid greenwashing.
Pradeep Ramakrishnan: General Manager, Department of Debt and Hybrid Securities at SEBI, who is the contact person for the circular.
Department of Debt and Hybrid Securities: The department within SEBI responsible for issuing this circular related to green debt securities.
Greenwashing: Making false, misleading, unsubstantiated, or otherwise incomplete claims about the sustainability of a product, service, or business operation, which the circular aims to address.
CIRCULAR
SEBI/HO/DDHS/DDHS-RACPOD1/P/CIR/2023/020 February 03, 2023
To,
All Issuers who have listed/ propose to list green debt securities
Madam/ Sir,
Sub: Dos and don’ts relating to green debt securities to avoid occurrences of
greenwashing
1. Regulation 2(1)(q) of the SEBI (Issue and Listing of Non-Convertible Securities)
Regulations, 2021 (‘NCS Regulations’), defines “green debt security” and Chapter IX of
the Operational Circular for issue and listing of Non-Convertible Securities (NCS),
Securitised Debt Instruments (SDI), Security Receipts (SR), Municipal Debt Securities and
Commercial Paper (CP) dated August 10, 2021 as amended from time to time
(‘Operational Circular’), inter-alia provides the initial and continuous disclosure
requirements for entities issuing/ proposing to issue green debt securities.
2. The extant framework of ‘green debt security’ was reviewed recently and consequential
changes were brought in the NCS Regulations vide Gazette notification dated February
02, 2023. In the process of consulting the stakeholders, comments/ representations from
the market participants, particularly investors, were also received to address the concerns
of ‘greenwashing’.
3. While there are no universally accepted taxonomies on greenwashing, the generally
accepted definition of ‘Greenwashing’ is, ‘making false, misleading, unsubstantiated, or
otherwise incomplete claims about the sustainability of a product, service, or business
operation’.
4. To address the concerns of market participants, regarding greenwashing, an issuer of
green debt securities shall ensure the following to avoid its occurence:
(i) While raising funds for transition towards a greener pathway, it shall continuously
monitor to check whether the path undertaken towards more sustainable form of
operations is resulting in reduction of the adverse environmental impact and
contributing towards sustainable economy, as envisaged in the offer document.
(ii) It shall not utilize funds raised through green bonds for purposes that would not fall
under the definition of ‘green debt security’ under the NCS Regulations.
(iii) In case any such instances mentioned in (ii) above come to light regarding the green
debt securities already issued, it shall disclose the same to the investors and, if
required, by majority of debenture holders, undertake early redemption of such debt
securities.
Page 1 of 2(iv) It shall not use misleading labels, hide trade-offs or cherry pick data from research to
highlight green practices while obscuring others that are unfavourable in this behalf.
(v) It shall maintain highest standards associated with issue of green debt security while
adhering to the rating assigned to it.
(vi) It shall quantify the negative externalities associated with utilization of the funds raised
through green debt security.
(vii) It shall not make untrue claims giving false impression of certification by a third-party
entity.
5. The provisions of this circular shall come into force with immediate effect. The provisions
of this circular shall be appended as new Chapter IX-A of the Operational Circular.
6. The Circular is issued in exercise of the powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 55 (1) of the SEBI
(Issue and Listing of Non-Convertible Securities) Regulations, 2021, to protect the interest
of investors in securities and to promote the development of, and to regulate the securities
market.
7. This Circular is available at www.sebi.gov.in under the link “Legal→Circulars”.
Yours faithfully,
Pradeep Ramakrishnan
General Manager
Department of Debt and Hybrid Securities
+91-22-26449246
pradeepr@sebi.gov.in
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