India Unveils ESG Rules For Social And SLB Bonds

In a significant move towards deepening its sustainable finance market, the Securities and Exchange Board of India (SEBI) has unveiled a new regulatory framework aimed at governing the issuance of ESG (Environment, Social, and Governance) debt securities, specifically social bonds, sustainability bonds, and sustainability-linked bonds (SLBs). The new framework, announced on June 9, 2025, outlines stringent disclosure and third-party verification requirements for issuers of these bonds, excluding green bonds, which already fall under a separate regulatory mechanism.

The introduction of this framework marks a notable expansion in India’s ESG finance landscape. It reflects SEBI’s intent to standardize the issuance process and align Indian sustainable debt markets with internationally recognized guidelines such as those from the International Capital Market Association (ICMA) and the Climate Bonds Initiative. According to SEBI, only those bonds that fund projects compliant with these globally accepted standards or definitions will be permitted to carry the labels of Social, Sustainability, or Sustainability-Linked Bonds.

The framework emphasizes transparency and accountability across all stages of a bond’s lifecycle—before issuance, during implementation, and in post-issuance phases. For social bonds, which are meant to fund projects addressing social issues, the framework stipulates that funds can only be deployed in pre-defined categories. These include affordable basic infrastructure, access to essential services such as education and healthcare, employment generation or initiatives reducing unemployment, food security projects, and broader efforts supporting socioeconomic advancement and empowerment.

Issuers of social bonds are now mandated to disclose detailed information regarding the purpose of the projects being funded, the specific target population, and the expected social impact. Further, companies must explain the decision-making process used to evaluate the eligibility of funded projects and outline the mechanisms in place to track the allocation and usage of funds. These disclosures are to be made available before issuance and updated regularly in annual reports post-issuance. The framework also requires that any unutilized proceeds be specifically accounted for.

A cornerstone of the new regulations is the mandatory engagement of independent third-party reviewers. These reviewers are responsible for verifying that the bonds are aligned with recognized standards and that internal systems for fund tracking and impact reporting are in place and functional. They also play a key role in ensuring post-issuance compliance with disclosure norms and ongoing impact measurement.

The framework goes a step further in regulating sustainability-linked bonds (SLBs), which differ from social or green bonds in that they are not tied to specific projects but to the issuer’s achievement of defined sustainability performance targets (SPTs). For SLBs, SEBI has introduced rigorous pre-issuance disclosure norms. Issuers must disclose their overall sustainability strategy and business objectives, the Key Performance Indicators (KPIs) that will be used to measure progress, the rationale for selecting these indicators, and how they align with the company’s broader ESG goals.

In addition, issuers must explain how these KPIs address sector-specific ESG challenges and demonstrate a material connection to their core business activities. SEBI mandates the involvement of third-party reviewers for SLBs as well, to assess the appropriateness, robustness, and reliability of the chosen KPIs and to evaluate the ambition and credibility of the proposed SPTs. This process ensures that companies are not only transparent but also genuinely committed to sustainability goals, rather than using SLBs as a tool for greenwashing.

The overarching aim of SEBI’s new framework is to bring clarity, credibility, and investor confidence to India’s growing ESG bond market. By enforcing strict disclosures and mandating independent reviews, the regulator seeks to prevent misuse of ESG labels and ensure that raised funds are used for verifiable and impactful sustainability and social development outcomes.

These measures are particularly timely as global and domestic investors increasingly prioritize ESG factors in their portfolios. India, which has set ambitious targets for sustainable development and climate resilience, requires robust financial instruments to fund such transitions. SEBI’s initiative aligns with this vision, offering a clear roadmap for corporates and financial institutions to contribute meaningfully to India’s ESG objectives.

As the country strives to become a key player in sustainable finance, the newly introduced regulations not only reinforce regulatory discipline but also create a framework conducive to attracting global capital for sustainable and inclusive growth.