Mid-sized firms may struggle as Sebi raises bar on ESG debt

Sebi's circular aims to prevent misrepresenting the social or environmental intent behind ESG bond proceeds

- Neha Joshi

The capital market regulator's new rules for continuous monitoring and third-party verification of ESG-labelled bonds could raise compliance burden and deter participation of mid-sized firms, experts said.

The Securities and Exchange Board of India's (Sebi's) circular, effective June 5, aims to combat "purpose-washing" or the misrepresentation or exaggeration of the social or environmental intent behind ESG bond proceeds.

The framework to ensure such debt issuances remain aligned with clearly stated and measurable goals brings India's regulatory stance closer to global standards.

"By incorporating factors like third-party verification, comprehensive disclosures about the issuer decision-making process, project selection and deployment, brings a lot of accountability on the issuer of these securities and acts as a much-needed confidence-building measure for investors," said Swati Agrawal, CEO and president at CareEdge Advisory.

"Mandatory requirement of third-party review/certification is the right step to address growing concerns on green-washing of claims made by issuers."

Agrawal, however, warned that the capacity to meet such detailed obligations is uneven across India Inc., with mid-sized firms still finding them difficult.