On August 1 2025, the Securities and Exchange Board of India (SEBI) released a consultation paper draft circular ("Proposed Circular") proposing revised norms for appointing independent third-party reviewers or certifiers for green debt securities. This Proposed Circular, which was open for public comments until 21 August 2025, aims to align the regulatory framework for green debt securities with the more stringent and comprehensive rules already in place for ESG debt instruments such as social and sustainability bonds.
The proposal marks a significant shift in India's green finance landscape, signalling SEBI's intent to curb greenwashing and enhance transparency in how funds raised through green debt securities are evaluated, monitored, and reported. For issuers, investors, and certifiers, this is not just a regulatory update – it is an early signal of evolving compliance expectations that will soon become the industry standard.
The Background
India's green debt market is expanding rapidly, attracting investors focused on social and environmental impact. To enhance reliability and transparency, the Securities and Exchange Board of India (SEBI) has periodically introduced regulations governing the issuance, listing, and disclosure of green debt securities
On August 1, 2025, SEBI rolled out the Proposed Circular revising the norms for appointing independent third-party reviewers or certifiers for green debt securities. Addressed to all issuers who have listed or intend to list such securities, the circular seeks to curb greenwashing and enhance transparency. It is essential for both issuers and reviewers to understand these requirements to remain compliant and competitive.
A listed debt instrument issued to raise money for projects or assets falling under eligible green categories such as clean transportation, renewable energy, sustainable water management, biodiversity conservation, and climate change adaptation, is referred to as a "green debt security" under Regulation 2(1)(q) of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 ("NCS Master Circular"). These tools are now an essential part of ESG-focused portfolios, drawing in investors towards environmentally and socially conscious investments. Issuers need to be transparent about their utilization of funds raised through these securities to build investor confidence leading to both market growth and a sustainable environment.
Greenwashing: A Growing Concern
Greenwashing refers to the practice of issuers exaggerating or
misrepresenting the environmental benefits of projects financed by
green securities. It leads the investors to believe that their
contribution is towards genuine sustainability initiatives whereas
the claims may be false, incomplete or unreliable.
To address this issue, SEBI in its circular dated February 3, 2023
provided a list of Do's and Don'ts that the issuers must
adhere to prevent such malpractices.
Dos and Don'ts to prevent Greenwashing in Green Debt Securities prescribed by SEBI are as follows:
Dos:
- Regularly monitor and verify that the funds raised is helping your business to in run in a greener and more sustainable way.
- Ensure that the funds are utilised in projects that fall under the definition of "green debt security" under the SEBI NCS Regulations
- If any portion of the funds is used for non-green purposes, inform the investors and, if the majority of security holders demand, arrange for early repayment of those funds.
- Transparently report any negative environmental impacts linked to the projects funded through the green bonds.
Don'ts:
- Do not use exaggerated labels that might imply that your bond or project is greener than it actually is.
- Avoid highlighting the positive environmental aspects while hiding any trade-offs or negatives related to your initiatives.
- Do not make false claim or suggest that your green bonds have been certified or reviewed by third parties when they have not.
A Transformative move
The SEBI circular of February 6, 2023, set up an important framework for green debt securities that requires more disclosures and impact reporting. It did, however, encourage issuers to get third-party reviews of green bonds, but these reviews were not mandatory This framework was primarily about green bonds and did not cover all types of ESG debt instruments.
The circular of June 5, 2025, built on this by creating a more comprehensive regime that included social bonds, sustainability bonds and sustainability-linked bonds but green debt securities were still regulated by the older, lesser strict rules.
SEBI's Revised Norms for appointment of an independent third-party reviewer/certifier for green debt security" now aims to enhance rules for transparency and accountability in the green finance ecosystem. Previously governed by a relatively basic regulatory framework, once the Proposed Circular is finalised, green debt securities will now adhere to an enhanced and harmonized structure consistent with ESG Debt Securities such as social and sustainability bonds.
The core purpose is to bridge the gap between older disclosure rules for green debt securities dated February 6, 2023 and the comprehensive ESG Debt Securities framework mentioned on June 05, 2025. This is expected to result is a robust and investor-friendly ecosystem.
The key structural change includes the deletion of Paragraph 1.8 of Chapter IX of the NCS Master Circular, which contained the earlier provisions related to third-party reviewers of green debt securities. In its place, a new detailed Paragraph 5 is inserted. This new provision lays down clear guidelines regarding the following:
Appointment of an independent third-party reviewer or certifier: Companies issuing green debts must choose an independent third-party reviewer or certifier. This reviewer must be responsible for ensuring that the issuance follows SEBI rules, including reviewing how projects are evaluated, selected and verified for eligibility.
Independence and Remuneration: The reviewer needs to be completely independent of the company issuing the debt, including its directors and top management. The remuneration of the reviewer should not lead to conflict of interest, ensuring that their assessment is fair and unbiased.
Expertise: Reviewers should have the right skills and experience to evaluate ESG debt securities properly. They need to be qualified and knowledgeable given the specialized nature of these instruments.
Scope of Review: The exact details of what the review covers must be clearly explained in the offer document. This helps investors and other interested parties understand what part of the process is being checked.
Forms of Review: The independent review can be in various recognized forms including Second Party Opinion, Verification, Certification and Scoring/Rating, in tandem with the recommendations of the International Capital Market Association guidelines.
Eligibility of ESG Rating Providers: Besides other qualified entities, ESG rating agencies registered with SEBI can also be appointed as third-party reviewers, if they meet all the independence and expertise requirements.
Disclosure: Companies issuing green debt securities must clearly mention details about their chosen independent reviewer or certifier in the offer document to ensure transparency and accountability.
Why this matters: Implications for Stakeholders
The Proposed Circular aims to build trust among lenders, investors and regulators by making sure that green debt securities are checked and approved consistently. This helps reduce the chances of greenwashing. Issuers are expected to work closely with qualified independent reviewers, keep their disclosures transparent and follow the ESG standards set by SEBI while issuing green bonds. Reviewers, on the other hand, need to stay independent, ensure strong expertise in their field, and be objective in their audits to stay trustworthy and credible in this evolving market.
These rules indicate SEBI's commitment towards protecting investors while also promoting sustainable finance that align with global standards. The new guidelines for third-party reviewers of green debt securities marks a shift from scattered rules to a more coordinated, clear system. This step not only boosts accountability but also helps protect investors and builds more trust in India's push towards sustainable finance. Issuers and auditors need to make sure their methods, processes and reports are transparent and thorough enough to meet the evolving standards of India's growing capital markets.
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