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In a bid to usher in greater transparency and better monitoring of funds collected through green bonds, the Securities and Exchange Board of India has proposed to introduce guidelines that would make it mandatory for the issuer to not only disclose the manner in which the proceeds would be used, but also to verify the utilisation through an external auditor.
In a discussion paper floated on Thursday, SEBI has proposed that the issuers shall also provide, at least on an annual basis, a list of projects to which proceeds from the green bond were allocated. This may also include details of the expected environmental impact of such projects.
No standard guidelines
Though a number of entities have issued green bonds (see infobox) in India, there is no standard definition and the one that is being currently used is based on market practice. Though SEBI clarified that issue of green bonds in India does not require any amendment to the existing regulations applicable to any regular corporate bond issuance, for green bonds, an issuer will have to disclose additional information as laid out by SEBI in the paper.
The issuer also has to provide the details of decision-making process it has followed for determining the eligibility of projects for using green bond proceeds. Some of the investment areas listed out by SEBI include renewable and sustainable energy (wind, solar, etc.), clean transportation, sustainable water management, climate change adaptation, sustainable waste management, sustainable land use and biodiversity conservation.
“The proceeds of green bonds shall be credited to an escrow account, and shall be utilised only for the stated purpose, as in the offer document. The use of the proceeds shall be tracked as per an approved internal policy of the issuer and such policy shall be disclosed in the offer document. The utilisation of the proceeds may also be verified by the report of an external auditor, or other third party, to verify the internal tracking method and the allocation of funds towards the projects, from the green bond proceeds,” SEBI said in a discussion paper.
Funding green goals
The SEBI move comes even as India’s Intended Nationally Determined Contribution (INDC) document suggests that at least $2.5 trillion (at 2014-15 prices) will be required for meeting India’s climate change actions between now and 2030. The document talks about the introduction of Tax-Free Infrastructure Bonds of $794 million for funding of renewable energy projects during the year 2015-16. Further, India has embarked upon an ambitious target of building 175 GW of renewable energy capacity by 2022 and this requires a massive estimated funding of $200 billion. “Thus, the financing needs of the renewable energy space require new channels to be explored which can provide not only the requisite financing, but may also help in reducing the cost of capital. Green bonds as a part of the corporate bonds space may be one of the answers to this problem,” SEBI said in the paper.
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