The Securities and Exchange Board of India (SEBI) has released its new Framework for Environment, Social and Governance (ESG) Debt Securities (other than green debt securities), setting out regulatory requirements for issuers of social, sustainability and sustainability-linked bonds (SLBs). Green bonds are already covered under a separate framework.

The new framework includes disclosure requirements before and after issuance of the securities, as well as requirements for the use of third-party reviewers for the disclosures and to assess alignment with standards.

The new framework sets out a requirement for bonds only to be labelled as Social, Sustainability or SLBs if they fund projects aligned with recognized standards or fall under definitions set out by organizations such as the ICMA Principles or Climate Bonds Standard.

The new rules also set specific categories for use of proceeds for social bonds, including affordable basic infrastructure, access to essential services, employment generation and alleviation of unemployment, food security, and socioeconomic advancement and empowerment.

When issuing social bonds, the framework requires disclosures including the objectives of the social project, including the target population and intended benefits, details of the decision-making process for determining the eligibility of the projects, the procedures to be used to track the deployment of proceeds. After issuance, the framework includes ongoing disclosure requirements to be made in the issuer’s annual report, covering areas including utilization of proceeds and details of unutilized proceeds.

Social bond issuers are also required to appoint an independent third party reviewer to ascertain that the labelled securities align with recognized standards, and to follow post-issue management of the bond proceeds, and to verify internal tracking and impact reporting.

For SLBs, required disclosures include details of the issuer’s sustainability and business strategy, definition of sustainability Key Performance Indicators (KPIs) and details of the sustainability performance targets (SPTs), and the rationale for how the KPIs were selected, as well as for how they fit into the issuer’s sustainability strategy and how they address relevant ESG challenges.

The new framework also includes a series requirements for the use of third-party reviewers for SLBs, including for assessment and certification of the relevance, robustness and reliability of the selected KPIs, the material linkage of the KPIs to the issuer’s sustainability and business strategy, and the rationale and level of ambition of the proposed SPTs, among others.