Growing Green Finance in India: A Review of Green Bond Principles, Indian Green Debt Securities and ESG

The below thought piece explores the ‘stakeholder’ approach to a low carbon future and global commitments under the Paris Accords, through the institutional and regulatory framework for ‘green bonds’ as emerging financial instruments in India.

The Grass is Greener Where You Water It

In 1970, American economist Dr. Milton Friedman opined a revolutionary idea on the purpose and responsibilities of business, which arguably propelled contemporary discourse on business responsibility and corporate governance. The idea questioned “what the doctrine of social responsibility implied and for whom.” Friedman, limiting his arguments to corporate executives (agents), acting on the discretion of the principals’ (stockholders, and not individual proprietors) interests – argued that the primary responsibility of business is towards stockholders and is restricted to making profits. Good, therefore, must be done at one’s own expense. From this view, individual proprietors were in the clear to simultaneously conduct business and invest toward social ends.

Dr. Friedman’s ideas nudged economists and scholars to consider the question of “for whom” social responsibility has implications. The responses devolved to include individuals and entities beyond the company itself, through what has commonly come to be known as the ‘stakeholder approach’ to business.

Amidst evolving discourse on global economic challenges and the role of corporations within this changing paradigm, the United Nations adopted the Paris Agreement, 2016 (“Paris Accords”) encapsulating global obligations towards climate change mitigation, sustainable investments and a low carbon future. The obligations under the Paris Accords may be considered as (i) co-operation based; or (ii) investment-based, towards fulfilment of the signatory countries’ nationally determined contributions. Pertinently, the investment-based obligations relate to (i) making finance flows consistent with climate resilience; and (ii) adopting diverse and appropriate financial and technological instruments. The Paris Accords also mandate that signatories concomitantly enable transparency of, and access to these arrangements.  There is, therefore, a discernible shift in the way we perceive not only the question of “for whom”, but also the “how” of investments, through evolving regulatory approaches.

Green Bond Principles: Global Investment Directives

Climate finance is a rapidly developing arm of international funding systems, with growing deliberations on the feasibility of employing financial instruments geared to meet the mandate under the Paris Accords. The Green Bond Principles (Voluntary Guidelines for Issuing Green Bonds) (“GBPs”) by the International Capital Markets Association (“ICMA”), define a ‘green bond’ as any type of instrument where the proceeds or an equivalent amount will be exclusively applied to finance, or re-finance, in part or in full, new and/or existing eligible green projects. Under the GBPs, green bonds may include:

  • Standard green bonds: A recourse-to-the-issuer based debt obligation.
  • Green revenue bonds: A non-recourse-to-the issuer-based debt obligation. Here, credit risk exposure under the instrument is pledged to the project revenue flows.
  • Green project bond: A recourse/non-recourse-to-the issuer debt obligation. Here, the borrower has direct risk exposure for green project(s).
  • Green securitised bond: A bond backed by green project(s), with the primary repayment source being the project revenue flows.


The GBPs comprise of 4 (four) main principles:

  • Use of proceeds: The GBPs recognize ‘green projects’ to include those oriented towards capital asset formation and operational expenditures, in (i) renewable energy; (ii) energy efficiency; (iii) pollution control; (iv) green buildings and real estate; (v) refurbished goods; and (vi) sustainable water management systems.
  • Project evaluation and selection: Green bond issuers are strongly encouraged to provide clear indications to prospective investors of the sustainability objectives and environmental perils associated with the instrument.
  • Management of proceeds: The allocated and unallocated net proceeds should be managed effectively and intimated to investors during the stages of fund disbursement and usage.
  • Reporting mechanisms: Issuers are encouraged to maintain transparent and accurate records of fund allocation and fund usage, to facilitate impact assessment and end-uses of green bond proceeds.


The GBPs recommend that issuers (i) align their green bond frameworks with the GBPs while making such frameworks easily accessible to potential investors; (ii) appoint external reviewers to conduct a preliminary assessment of their green bond frameworks viz the GBPs; and (iii) appoint external auditors to verify tracking and green bond proceeds management, post-issue.

Green Bonds in India: Identification, Investment and End-Use

Classifying Green Debt Securities

In April 2021, India’s central bank, the Reserve Bank of India (“RBI”) joined the Central Banks and Supervisors Network for Greening the Financial System (“NGFS”), as a member. The NGFS was launched at the Paris ‘One Planet Summit’ in 2017, and is a global network of banks endeavouring to develop best practices towards climate risk management. At present, the RBI, among other regulators, is reviewing the feasibility and opportunities for green finance, to support a shift towards sustainable economic growth.

Further, regulations and guidelines issued by the Indian securities regulator, the Securities and Exchange Board of India (“SEBI”), govern the Indian green bond framework. The SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 define a green debt security as funds raised through debt securities, utilized for project(s) and/or asset(s) falling under any of the following broad categories:

  • Renewable energy (including wind, solar, bioenergy, and any other energy sources using clean technology);
  • Clean transportation;
  • Sustainable water management systems;
  • Energy efficient and green buildings;
  • Sustainable waste management;
  • Biodiversity conservation; and
  • Any other category specified by the SEBI, from time to time.


Green Debt Securities: Reporting & Disclosures

In addition to the disclosure requirements under the SEBI (Issue and Listing of Debt Securities), 2008, the SEBI has also mandated disclosure requirements for issuers of green debt securities, including:

  • continuous review and assessment of identified green project(s) and/or asset(s);
  • continuous disclosure of utilized and unutilized proceeds;
  • ensuring that all project(s) and/or asset(s) funded by the proceeds of green debt securities, meet their documented objectives; and
  • offering qualitative and quantitative indicators on the environmental impact of the project(s) and/or asset(s); and
  • verifying proceeds and internal tracking mechanisms, through external auditors.


The legal framework on green debt securities (“SEBI Green Framework”) has also been made available on the SEBI portal. It may be argued therefore, that the SEBI Green Framework runs parallel to the GBPs.

ESG and Sustainability Regulation

In conjunction with financial regulatory changes, governments are also creating frameworks for sustainable corporate responsibility; particularly through environmental social and governance (“ESG”) regulation.  ESG factors are typically non-financial factors used to identify investment opportunities, challenges, and end-uses.

In India, Regulation 34 of the SEBI (Listing Obligations and Disclosure Requirements Regulations, 2015 (“SEBI LODR”) mandates that the top 1000 (one thousand) entities (based on market capitalisation) must include in their annual report, a mandatory business responsibility report (“BRR”), or a voluntary business responsibility and sustainability report (“BRSR”) listing the ESG initiatives taken by the company. However, under the SEBI LODR, the BRR submission requirement would be discontinued post the financial year 2021-22 and would stand replaced with the mandatory submission requirement of a BRSR.

It is pertinent to note, the corporate social responsibility framework under the (Indian) Companies Act, 2013 and extant rules, aligns regulation on eligible green CSR activities, annual reporting, and impact assessments – to support the adoption of best corporate governance practices.

Looking ahead

The framework for green debt securities may be amenable to further changes, subject to regulatory approaches taken. At the same time, regulators appear cognizant of the challenges in growing green finance, including among others (i) ‘greenwashing’ (that is, inaccurate representations of an entity’s environmental soundness); (ii) absence of accepted global standards and industry terminology (for example, what would definitively constitute a ‘green’ project); and (iii) metrics of environmental compliance.

Interestingly, global regulatory approaches may in certain respects align with Dr. Friedman’s views on economic externalities, such as environmental pollution.  Shortly after proposing the ‘stockholder approach to business’, Friedman in 1979 advocated for emission control, through taxation.

Today, removed from regulatory concerns – the market itself is interested in and responsive to more diverse financial instruments. One may argue therefore, that deepening investor interest in ESG principles and corporate sustainability compliance, reflects evolving conceptions of ‘profit’ and ‘rationality’ in the business ecosystem.