In a bid to bring transparency and better monitoring of funds collected through Green Bonds, the SEBI has proposed to introduce guidelines that would make it mandatory for the issuer to not only disclose how the proceeds will be used but also verify the utilisation through an external auditor.
In a discussion paper floated on Thursday, SEBI has also proposed that the issuers shall also provide, at least on an annual basis, a list of projects to which Green Bond proceeds have been allocated. This may also include the details of the expected environmental impact of such projects.
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 the SEBI clarified that issuance of Green Bonds in India does not require any amendment to the existing regulations applicable to any regular corporate bond issuance, however, for designating an issue of corporate bonds as green bonds, an issuer shall have to disclose additional information 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 proceeds shall be tracked as per an approved internal policy of 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.
The SEBI’s 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 gigawatt of renewable energy capacity by 2022 and this requires a massive estimated funding of $200 billion.
“Thus, the financing needs of 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 the capital. Green bonds as a part of corporate bonds space may be one of the answer to this problem,” SEBI said in a discussion paper.
Green Bonds until now
Yes Bank was the first Indian entity to issue a green bond. In February 2015, the bank issued a bond worth ` 1000 crore with a tenor of 10 years. The bond was oversubscribed about two times. The bank followed it up with another 10-year green bond of size ` 315 crore. International Finance Corporation subscribed to whole issue.
The proceeds will be utilised towards funding renewable energy projects such as solar, wind and biomass projects.
Three other entities – CLP India, Exim Bank and IDBI Bank have also issued green bonds.
CLP India raised ` 600 crore at 9.15 per cent in three series of equal amounts. These bonds will mature every April in 2018,2019 and 2020.
In March 2015, Exim Bank floated a dollar denominated green bond offering for $ 500 million with a five year tenor. The issue was subscribed 3.2 times and the Bank plans to utilise the monies towards funding green projectys in countries including Bangladesh and Srilanka.
IDBI Bank raised $350 million 5-year bonds, at Treasuries plus 255 basis points.. The issue was oversubscribed three times about $ one billion with Asian investors subscribing to 82 per cent and European investors the remaining 18 per cent.