Introduction
“Green Bonds are the
one of the kinds of debt instruments, wherein the issuer gets capital from the
investors only if the investment (capital) is being raised to fund green
projects relating to renewable energy or
emission reductions etc. In order to regulate the Green Bonds market in India
the Securities Exchange Board of India (SEBI) in May, 2017 came out with a
circular stating the disclosure requirements for issuance and listing of Green
Debt Securities in India. Such guidelines demonstrates SEBI’s recognition of
the increasing need of dedicated funds for clean energy projects”
Recent transactions have
demonstrated the demand for and growth of green bonds in India.
Green Debt Securities
as Defined under the Circular
A debt security shall be
considered as ‘Green’ or ‘Green Debt Securities’, if the funds raised through
issuance of the debt securities are to be utilized for project(s) and/or
asset(s) falling under any of the following broad categories-
The scope of the definition
has been kept wide to include most types of green projects and SEBI has been
empowered to include any other category of projects from time to time.
Disclosures in Offer
Documents / Disclosure Documents for Green Debt Securities
The Green Bond Guidelines
stipulate the following disclosures and other obligations for the issuing
entity which are in addition to the typical disclosure norms applicable to any
other type of bond issuance under Issue and Listing of Debt Securities (ILDS)
Regulations:
- Statement on environmental
objectives of the issue of the Green Debt securities;
- Brief details of the decision
making process the issuer has followed or intends to follow in determining the
eligibility of project(s) and/or asset(s) for which green bonds are being
issued;
- Details of the
system/procedures to be employed for tracking the deployment of the issue
proceeds;
- Details of end utilization of
the proceeds; and
- Appointment of an independent
third – party reviewer / certifier, for reviewing / certifying the processes
including project evaluation and selection criteria, project categories
eligible for financing by Green Debt Securities.
It is important to note that
refinancing of existing green projects / assets has been recognized as an
acceptable end-use. Further, the guidelines do not mandate an escrow mechanism
to be installed but require the tracking procedure for deployment of funds to
be detailed in the disclosures. Whilst the appointment of a third party
reviewer/certifier is optional and the prerogative of the issuer, any such
appointment should be disclosed in the offer documents.
“The issuer of a green
bond to make disclosure about environmental objectives of the issue of such
securities in the offer documents. Besides, issue also has to provide details of
the systems and procedures to be employed for tracking the proceeds of the
issue, including investments made and earmarked for eligible projects in the
offer documents.”
Continuous Disclosure
Requirements
Apart from the disclosures to
be made by the issuer as a part of the offer document/disclosure document, the
issuer is required to follow a set of continuous obligations and periodically
submit certain documents to the SEBI. The following disclosures are to be made:
- End-use Monitoring: Detailed
reporting on utilisation of proceeds on the basis of any internal tracking done
by the issuer where such internal tracking is verified by an external auditor
and details of unutilised portions are required to be submitted on a half
yearly basis and along with annual financial statements.
- Annual reporting: On an annual
basis, along with the submission of the annual report, the issuer is required
to disclose the quantum of amount raised and a list of projects with brief
descriptions, for which such amounts are raised. Specific details would not be
required where such information is confidential. For such projects general
sectoral information would suffice.
- Performance evaluation: The
issuer is required to set out certain qualitative and quantitative performance
indicators and the underlying assumptions used in preparation of such
performance indicators and metrics. In the event the issuer is unable to
ascertain the quantitative benefits/impact, reasons for non-ascertainment are
to be provided.
Responsibilities of
Issuer
An issuer of Green Debt
Securities is required to undertake additional responsibilities in determining
whether a particular project/asset warrants such funding, maintain a decision-making
process by disclosing a statement on environmental objectives, ensure that once
the project(s)/asset(s) are funded they meet the desired objective and that the
funds have only been used for the stated purpose.
“A Green Bond is a
regular fixed-income financial instrument for raising capital through the debt
capital market with the key differentiator being the framework for utilization
of the proceeds of such bonds. The Green Bond market is developing into a class
of alternate investment spurred by the growing realization that urgent steps
have to be taken to address a range of rising environmental issues. Creating
solutions to these challenges will require new ideas and investment capital.
With the issuance of
Green Bonds by Indian Corporates, there shall be significant positive
multiplier effect due to investor diversification, increased capital inflow,
and access to finance at various stages of the project lifecycle”
Conclusion
The Green Bond Guidelines
formalize the regulatory framework for green bonds with the aim of addressing
the critical financing needs of India’s rapidly expanding clean energy market.
These guidelines with a benchmark for disclosure standards together with
regular and continuous monitoring mechanisms to ensure that the funds are
solely utilized for green projects. It is expected that this will widen access
of the renewables sector to domestic and foreign capital and ease the strain on
banks to lend and re-finance long term green projects.
The Green Bond Guidelines
address the need for detailed disclosure norms in respect of the borrowing
entity and the project for which the fund is required and ensures close
monitoring of the utilisation of the bond proceeds. The Green Bond Guidelines
will give an impetus and add immense credibility to an innovative financial
product which has already established its success in both international and
domestic markets. This step will aid the corporate bond market as well as
strengthen India’s global commitments at international climate change forums.
India is one of popular
markets when it comes to issuance of Green Bonds. It featured in the 7th
position in terms of issuances in 2016 with issuance of USD 2.7 billion, behind
United States, France, China, Germany, Netherlands and Sweden. The future
prospects of Green Bonds in India also seems bright, considering the ambitious
target set by India’s Intended Nationally Determined Contribution (INDC) for
achieving climate change object and funding requirement of USD 2.5 trillion
that is envisaged by INDC for meeting the desired objectives. On such pretext,
some definitive guidelines will certainly do a world of good for the issuers in
the country.
For More Detail:
Download
Acquisory News Chronicle - July 2017
