SEBI’s ESG Debt Securities Framework: A Regulatory Guide for Social, Sustainability, and Linked Bonds

Introduction

SEBI had issued a framework for issuance and listing of Environment, Social and Governance (ESG) debt securities, excluding green bonds, on June 5, 2025. A similar measure was undertaken by SEBI in September 20224 to regulate instruments like social bonds, sustainability bonds and sustainability linked instruments. These standards are designed to be new if not makeshift architecture for ESG issuers, and to ensure proceeds from ESG-labelled bonds are employed in line with so stated goals. The framework is applicable to large variety of players, comprising issuers of such bonds, stock exchanges, debenture trustees and ESG rating providers.

Applicability

The framework applies to all entities that have issued or propose to issue social bonds, sustainability bonds, or sustainability-linked bonds on recognized Indian stock exchanges. While green bonds remain governed by a separate set of norms, the new circular brings the other ESG instruments into a defined space. The rules also apply to issuers on SME exchanges. These issuers must meet biannual disclosure requirements related to the use of funds and the progress of funded projects. All new issuances starting from June 5, 2025, are required to comply with the framework.

Understanding ESG Debt Instruments

SEBI defines ESG debt securities to include four broad instruments: green bonds, social bonds, sustainability bonds, and sustainability-linked bonds. Under the new circular, the focus is on the last three.

Social bonds are those where the funds raised are used for specific social projects. These may include projects related to housing, access to clean water, healthcare services, education, and employment programs. Sustainability bonds involve projects that combine environmental and social aspects. Sustainability-linked bonds do not have earmarked projects but instead link the bond’s financial features to the achievement of pre-set goals. These goals are measured using performance indicators and are tracked over time.

SEBI requires that the ESG instruments align with one or more international or domestic frameworks. These include guidelines issued by the International Capital Market Association, the Climate Bonds Standard, ASEAN standards, European Union frameworks, or those laid down by Indian financial regulators. The idea is to ensure that Indian ESG bonds are consistent with global practices. Issuers are free to choose which standard to follow, but they must disclose this in the bond documents and apply the selected standard throughout the bond’s term.

Social bonds are meant for projects that address specific social challenges. These may include developing public infrastructure like water supply, public transport, or sanitation. Other areas include access to health and education, job creation, food systems, and schemes for economic participation. Issuers must state the objective of each project, identify the group that will benefit, and describe how the project is expected to help that group. In addition, issuers must explain how projects are selected, how funds are allocated, and how usage will be monitored.

Sustainability bonds fund projects that combine environmental and social outcomes. Issuers must comply with rules that apply to both green and social bonds. For example, a water purification system that supports a rural community would qualify as both a green and social initiative. Issuers must describe both sides of the project in the bond offer document and explain how they meet eligibility criteria. Funds can be used for new projects or to refinance past projects, but this must be disclosed at the outset.

Sustainability-linked bonds are tied to the issuer’s performance on selected sustainability targets. These targets must be specific, measurable, and linked to long-term business strategies. Issuers must describe the indicators used to track performance, the targets that need to be met, and how progress will be measured. The bond’s financial terms, such as the interest rate, may change depending on whether the targets are met. Issuers must also outline fallback plans in case the indicators cannot be measured or if external events affect target achievement.

About the Circular

Issuers must provide detailed information before the bonds are issued. This includes the purpose of the bond, the selection criteria for projects, and systems for monitoring how funds will be used. For social and sustainability bonds, the issuer must describe where the funds will go, how the benefits will be tracked, and what risks are expected. In the case of sustainability-linked bonds, issuers must explain how performance indicators and targets are selected and why they are relevant. All these details must be included in the bond’s offer document.

After the bond is listed, issuers must continue to provide information to investors. This includes how the funds have been used, whether targets are being met, and what outcomes have been achieved. For example, an issuer of a social bond would report on how many people benefited from a new health facility. These updates must be shared annually and must include data verified by an external auditor. Issuers must also report on any funds that remain unused and how those are being managed in the meantime.

To ensure accuracy and build investor trust, SEBI requires issuers to appoint a third-party reviewer. This reviewer must be independent and experienced in ESG assessments. The reviewer checks whether the projects meet the defined standards and whether the systems for monitoring and reporting are in place. In the case of sustainability-linked bonds, reviewers also assess the strength of the chosen indicators and the ambition of the performance targets. The review must be mentioned in the offer document, and the reviewer’s opinion must be made available to investors.

SEBI has laid down steps to prevent misuse of funds or mislabelling of bonds. Issuers must not use ESG labels if the funds are not being applied as claimed. They must also track the actual outcomes of the projects and disclose any gaps between planned and actual impact. If any project turns out not to meet the defined criteria, issuers must inform investors and may be required to repay bondholders early if a majority agrees. SEBI has also advised issuers to avoid presenting only favorable information or misrepresenting certification status.

SEBI’s framework also applies to smaller issuers on SME exchanges. These entities must meet the same disclosure and reporting rules but on a biannual basis. This ensures that all investors, regardless of the size of the issuing company, receive consistent and clear information. The rules are designed to balance the ease of compliance with the need for transparency.

For issuers, the framework provides clarity on how to structure ESG bonds. It offers access to investors interested in projects with defined social or sustainability outcomes. However, issuers must also put systems in place to select projects carefully, monitor usage of funds, and report regularly. They must engage third-party reviewers and be prepared for early redemption in case of any deviation. Issuers may also need to train internal teams or hire external advisors to meet the requirements.

Conclusion

SEBI’s framework for ESG debt securities marks a shift toward better structure in India’s ESG bond market. It introduces defined roles and clear expectations for issuers, while giving investors the information they need to make informed decisions. By aligning with international standards and requiring third-party verification, the framework seeks to ensure that ESG-labelled bonds reflect actual outcomes. Over time, this may support the growth of a more transparent and accountable market for debt linked to social and sustainability goals.