The market regulator has proposed expanding the framework for sustainable finance to include social bonds, sustainable bonds and sustainability linked bonds.
Social bonds are those that are issued to raise money for projects that have social benefit; sustainable bonds are those that can fund projects that have social and/or environmental benefits; and sustainability-linked bonds offer favourable terms of financing to meet sustainability goals.
In a consultation paper released on August 16, the Securities and Exchange Board of India (Sebi) has also proposed introducing sustainable securitised debt instruments.
Securitisation involves the pooling of debt so that they can be repackaged into interest-bearing securities. The interest and principal payments are then passed on those who buy these securities.
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Currently, sustainable finance framework only covers green debt securities, which limits the issue of instruments to those that fund environmental sustainability. The regulator is looking to increase the scope of this mode of financing to include instruments that finance other forms of sustainability. The regulator has proposed that issuers of these securities be required to appoint an independent external reviewer/certifier.
The paper said, "It is proposed that for raising sustainable finance, in addition to existing green debt securities, issuers may also raise funds through issuance of social bonds, sustainable bonds and sustainability linked bonds (together with green debt securities will be termed ESG Debt Securities), and will be in accordance with such international frameworks as adapted or adjusted to suit Indian requirements that are specified by SEBI from time to time."
The paper proposed that, to the above end, amendments could be made to the non-convertible securities (NCS) regulations.
On the introduction of sustainable securitised debt instruments, the regulator proposed amending the securitised debt instruments (SDI) regulations to to introduce a framework for sustainable SDIs; that is, "instruments which have sustainable finance credit facilities as the underlying debt, and satisfies such international frameworks (as adapted or adjusted to suit Indian requirements) that are specified by SEBI from time to time."
The paper carried an illutration of how a securitisation process flow looks like:
Comments and suggestions from the public on these proposal needs to be sent to the regulator by September 6.
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