Sebi to Broaden ESG Finance Framework to Include More Products: Report

India’s market regulator, Sebi, plans to expand its sustainable finance framework to encompass a wider range of products, potentially boosting ESG-labeled instruments in Asia.

The Securities and Exchange Board of India is considering the introduction of social, sustainable, and sustainability-linked bonds to its existing environmental, social, and governance (ESG) debt offerings.

Additionally, Sebi's plans include integrating eligible asset-backed securities and mandating independent external reviews for all ESG debt, as outlined in a consultation paper released on Friday.

This proposal is seen as a positive development for the market, offering new opportunities to channel fixed income capital towards a broader range of issuers and projects, beyond just green bonds, according to Xuan Sheng Ou Yong, a sustainable fixed income lead at BNP Paribas Asset Management in Singapore.

This year, India has issued $15.6 billion in ESG debt, surpassing its previous annual record set in 2021. However, the volume remains below that of other major Asian markets like China and Japan.

The current regulatory framework restricts products to those that finance environmental sustainability projects, such as renewable energy and water management. The proposed changes would allow issuers to raise funds for a broader array of activities.

The consultation period will continue until September 6, and any changes to the framework could give Sebi the authority to regulate onshore bonds. Some major Indian firms, including Adani Group subsidiaries, have already started issuing sustainability-linked and social bonds in foreign currencies through private placements or listings abroad.

A stronger ESG debt market in India would align with Prime Minister Narendra Modi’s emphasis on green growth and could help offset the global market impact of a slowdown in Chinese ESG bond issuances. According to Sustainable Fitch, the global volume of ESG-labeled bonds fell by about a third in the second quarter compared to the same period last year.

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