Nikhil Toshniwal, a seasoned ESG consultant and currently working with a leading MNC bank in the GCC region, recently engaged with Sonal Desai, News Editor at esgnews.earth, to discuss India’s evolving ESG framework and its impact on the debt market.
How will SEBI’s expanded ESG framework, including social bonds, sustainability bonds, and SLBs, affect India’s sustainable debt market?
India has been among the frontrunners in establishing systematic regulations in the ESG and sustainability space. From the Business Responsibility and Sustainability Reporting (BRSR) framework, with its 140+ detailed reporting criteria, to ESG rating regulations, and now the sustainable finance framework, we see a level of granularity and maturity that places India ahead of many global peers. This new framework is comprehensive, providing clear regulatory guidance on ESG securities. It is also well-aligned with internationally recognized standards such as ICMA, and is built on leading global practices.
How effective will SEBI’s new disclosure and third-party review mandates be in preventing “purpose-washing” and ensuring genuine ESG commitments?
To safeguard the credibility and effectiveness of ESG investing, preventing greenwashing is critical. This demands rigorous due diligence, transparency, and adherence to established standards. The new framework mandates initial disclosures, continuous post-listing obligations, appointment of independent third-party reviewers, and detailed measures to mitigate the risks of “purpose-washing” and ensure offerings remain “true to label.” These internationally accepted practices, reinforced by regulatory oversight, will drive effective compliance and significantly bolster market integrity.
What are the key economic costs and benefits for Indian issuers utilizing the new ESG debt instruments, and which sectors/companies will be most impacted or benefit?
Over the past few decades, global investment trends have shifted from pure capitalism to sustainable capitalism, with decisions increasingly influenced by ESG considerations aimed at long-term resilience and value creation. In India, sustainable investing remains at a relatively early stage due to broader developmental priorities. However, these enhanced regulatory measures will position Indian companies to attract ESG-focused capital flows from developed markets.
India’s financial sector is poised for significant growth in sustainable finance. This framework will boost innovation, enabling financial institutions to develop new sustainable products and secure funding from multilateral agencies and DFIs for sustainable lending. Though compliance costs for ESG debt will increase, these will likely be outweighed by new product offerings and greater investment inflows.
How critical is independent verification of SLB KPIs/SPTs for market confidence and what are the scaling challenges?
Independent verification and assurance are essential to strengthening investor trust. Both in India and globally, shareholders and stakeholders increasingly rely on third-party assurance for company disclosures, traditionally in financial statements and now critically in non-financial areas as well. This is particularly important since systems to capture ESG KPIs are still evolving and often involve substantial manual processes. Moreover, the multitude of ESG standards and frameworks can make it challenging for stakeholders to interpret and act on these metrics.
While India and international markets already have a growing pool of agencies offering these verification services, there remains a pressing need for a unified assurance framework that comprehensively addresses non-financial reporting nuances. Additionally, companies will face higher compliance costs to meet SEBI’s new requirements.
How will SEBI’s global standard alignment for sustainable finance impact India’s international market position and capital attraction?
Alignment with international standards such as those set by the International Capital Market Association (ICMA), Climate Bond Standards, ASEAN, and the EU enhances the global credibility and acceptance of SEBI’s framework. These are the most widely adopted standards for sustainable finance worldwide. For instance, ICMA standards have been in place for over 50 years, with around 630 members operating across 71 jurisdictions, including issuers, banks, asset managers, insurers, law firms, and central banks.
This alignment helps Indian issuers streamline compliance under a single robust framework, reducing the need to separately adhere to varied international requirements, thereby lowering operational complexity and improving the ability to attract global capital.
How do these new guidelines underscore India’s strategic position and growing influence in the global ESG and green finance segment?
India’s rapidly evolving regulatory environment positions ESG compliance as a key strategic differentiator. Few countries have published such detailed frameworks and regulations for sustainable finance. By embedding ESG considerations, companies can better mitigate risks, attract investment, and secure long-term competitive advantages. Indian markets have consistently drawn interest from international investors and FIIs, and this strong regulatory push towards sustainable capitalism will further build global investor confidence.
How will enhanced transparency and accountability measures impact investor confidence and appetite for Indian ESG debt?
The framework requires issuers to monitor the use of proceeds, undergo third-party verification, prevent misleading claims and greenwashing, quantify negative externalities tied to fund utilization, and disclose any breaches of sustainability criteria. SEBI has done an impressive job addressing key concerns around investor protection and confidence through these measures.
A regulatory framework rooted in international standards will further enhance investor trust and appetite for Indian debt securities. According to the Green Bond Initiative, while Europe led in sustainable bond issuances, it grew by only 0.75% from 2022 to 2023. In contrast, the Asia-Pacific region saw a 39% surge, highlighting a significant opportunity for India. Local regulatory support will be instrumental in capturing this growth.
What economic incentives or disincentives will drive companies to integrate ESG into core strategy, beyond mere financing?
There is a global shift toward sustainability, reinforced by international platforms like the COP summits emphasizing net-zero transitions. As banks and companies craft their own sustainability visions, there is a growing move away from conventional financing toward sustainable finance. Financial institutions are embedding ESG requirements into their lending policies, which will drive companies to integrate ESG principles into core strategies, beyond mere regulatory compliance.
ESG is now widely recognized as a critical risk area, underscored by events such as COVID-19 and intensifying climate impacts. Embedding ESG is thus vital not just from a compliance standpoint, but also for long-term business sustainability and resilience.
What further policy interventions are needed to fully unlock India’s sustainable finance market potential?
Implementing sustainable finance regulations presents several challenges. For many companies, especially smaller ones, the complexity and costs of compliance may be overwhelming due to limited resources. There is also a pressing need to develop standardized data protocols for non-financial reporting, as reliable ESG data is critical for effective third-party verification.
Traditionally, businesses have focused on financial metrics, and integrating non-financial data into core systems like ERPs will require a cultural and technical shift. Additionally, the lack of harmonized ESG frameworks leads to varied interpretations and definitions, complicating compliance and stakeholder communication. Addressing these issues will be crucial to balancing market demands with regulatory expectations.
