SEBI issues Dos and Don’ts of Green Debt Securities to avoid occurrences of Greenwashing

The Securities and Exchange Board of India (SEBI) has issued a Circular on Dos and Don’ts of Green Debt Securities to avoid occurrences of Greenwashing. The Circular is issued to protect the interest of investors in securities and to promote the development of, and to regulate the securities market. This Circular was issued on 3rd February, 2023 and came into immediate effect.

The Circular recalls that as per its generally accepted definition, ‘Greenwashing’ means ‘making false, misleading, unsubstantiated, or otherwise incomplete claims about the sustainability of a product, service, or business operation’.

To address the concerns of market participants, regarding greenwashing, an issuer of green debt securities shall ensure the following to avoid its occurence:

  • While raising funds for transition towards a greener pathway, it shall continuously monitor to check whether the path undertaken towards more sustainable form of operations is resulting in reduction of the adverse environmental impact and contributing towards sustainable economy, as envisaged in the offer document.
  • It shall not utilize funds raised through green bonds for purposes that would not fall under the definition of ‘green debt security’ under the NCS Regulations.
  • In case any such instances mentioned in (ii) above come to light regarding the green debt securities already issued, it shall disclose the same to the investors and, if required, by majority of debenture holders, undertake early redemption of such debt securities.
  • It shall not use misleading labels, hide trade-offs or cherry pick data from research to highlight green practices while obscuring others that are unfavourable in this behalf.
  • It shall maintain highest standards associated with issue of green debt security while adhering to the rating assigned to it.
  • It shall quantify the negative externalities associated with utilization of the funds raised through green debt security
  • It shall not make untrue claims giving false impression of certification by a third-party entity.