Introduction
On 29 July 2025, the International Financial Services Centres Authority ("IFSCA") took a bold stride in shaping the future of sustainable finance in India by unveiling the revolutionary 'Framework for Transition Bonds'1 ("Framework") in International Financial Services Centres ("IFSCs") in India.
This forward-looking initiative. This forward-looking initiative fills the gap in sustainable finance by enabling hard-to-abate industries to secure funding for phased decarbonisation. Until now, IFSC issuers could list green, social or sustainability-labelled bonds. The Transition Bonds Framework extends that scope to projects that support a shift from brown to green, such as energy, steel and cement sectors, which face higher costs to cut emissions.
This article offers a detailed analysis of the Framework, compares it with taxonomies in the European Union and the Singapore-Asia region, and highlights the likely impact on business finance. It will help issuers, investors and advisers understand their obligations under the new rules and assess opportunities for raising capital in IFSCs.
Regulatory Context and Rationale
The IFSCA released the first regime for ESG-labelled debt in 2021 under the IFSCA (Issuance and Listing of Securities) Regulations, 2021 and subsequently subsumed in the IFSCA (Listing) Regulations, 2024 (Listing Regulations). These rules allowed the issuers to list green, social or sustainability bonds if they met taxonomies such as the Climate Bonds Standard or the EU Taxonomy.
By mid-2025, IFSC exchanges listed over USD 15 billion in ESG debt, representing roughly a quarter of total debt instruments in IFSCs. The success of that regime highlighted a financing gap: sectors responsible for about 40 per cent of global greenhouse gas emissions still lack affordable transition finance.
In response, an Expert Committee on Climate Finance recommended a dedicated Framework. Public consultation followed. Issuers and investors called for rules that would support high-emission industries while upholding environmental integrity. The IFSCA's circular balances flexibility and rigour. It recognises multiple taxonomies, mandates robust governance, disclosure and external review to guard against greenwashing.
Detailed Framework Analysis
I. Scope of Eligible Activities
The Framework defines "Eligible Activities" as projects, assets or corporate activities that support a credible pathway to net zero. An issuer shall align its bond use of proceeds with at least one approved taxonomy or technology roadmap. These include:
- the ASEAN Taxonomy for Sustainable Finance;
- the Australian Sustainable Finance Taxonomy;
- the Climate Bonds Taxonomy;
- the EU Taxonomy for Sustainable Activities;
- the Singapore-Asia Taxonomy for Sustainable Finance;
- International Energy Agency (IEA) Technology Roadmaps;
- Japan's Ministry of Economy, Trade and Industry (METI) Technology Roadmaps;
- any Indian government-specified taxonomy or roadmap;
- any other taxonomy permitted by the IFSCA.
This list ensures issuers can choose standards that best fit their sector and geography. It keeps the bar high by requiring recognised taxonomies yet allows for regional nuances.
II. Transition Plan Requirements
As per the Framework, issuers shall prepare and disclose a transition plan that meets six core elements:
| S.No. | Requirement | Details |
|---|---|---|
| (i) | Paris-aligned emission-reduction targets | Time-bound goals to keep global warming well below 2°C and aim for 1.5°C. |
| (ii) | Decarbonisation strategy | Includes technology deployment, operational changes, and investment timelines. |
| (iii) | Quantified emission targets | Time-bound targets for Scope 1 and 2 emissions, and Scope 3 where data permits. |
| (iv) | Governance and oversight | Board-level responsibility and integration of climate risk into enterprise risk management. |
| (v) | Stakeholder engagement | Involves suppliers, customers, and investors in the transition process. |
| (vi) | Public disclosure | Commitment to disclose transition strategy, targets, progress, and GHG measurement and risk assessment methodologies. |
The plan shall appear in the offer document or information memorandum. It shall explain baselines, methodologies and the issuer's business-model impact. This structure embeds climate action into strategic decision making and daily operations.
III. Use of Proceeds and Project Evaluation
While the Framework focuses on the issuer-level transition plan, it also requires a clear link between use of proceeds and eligible activities. Issuers shall list specific projects or assets, describe expected environmental benefits and set milestone dates for disbursement. They shall explain how funds will upgrade equipment, adopt cleaner technology or phase out high-emission processes. This level of detail aligns with best practice in sustainable finance and helps investors track impact.
IV. Independent External Review
To ensure credibility, issuers are required to appoint an Independent External Reviewer. Eligible providers include credit rating agencies or ESG-rating firms registered with the IFSCA, Securities and Exchange Board of India, Reserve Bank of India or other recognised authorities. The review may take the form of (a) a Second-Party Opinion; (b) verification of alignment; (c) certification against a standard. Issuers must disclose the review's scope, methodology and conclusions. This requirement addresses investor concerns about greenwashing and adds a layer of assurance.
V. Disclosure and Reporting
a) Initial Disclosure: The Framework requires comprehensive information in the bond-offering documents. Issuers shall include:
- the full transition plan, including governance structures;
- short, medium and long-term emission-reduction targets with baselines and methodologies;
- an outline of environmental materiality, showing how the bond aligns with the issuer's strategy;
- references to science-based scenario analyses, such as those by the IEA or Science Based Targets initiative (SBTi); and
- details of capital expenditure plans and phase-out schedules.
These requirements aim to give investors a complete view of the bond's role in the issuer's overall transition.
b) Ongoing Reporting
Issuers shall report annually until the bond matures. Reports shall cover, progress against emission targets, with data on Scope 1 and 2 emissions, allocation of proceeds to eligible activities, updates on Scope 3 accounting plans, changes to the transition plan, including corrective measures if targets slip, commentary on material risks and any changes in governance. The IFSCA encourages use of digital monitoring, reporting and verification (MRV) platforms to enhance data quality and timeliness.
VI. Comparative Analysis
To show how the Framework aligns with global practice, we compare it with two leading taxonomies: the EU Taxonomy and the Singapore-Asia Taxonomy, which are as follows:
- European Union Taxonomy: Regulation (EU) 2023/2631 of 22 November 20232 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds sets out a clear rulebook for green finance in the EU. An economic activity must make a substantial contribution to at least one of six environmental objectives, such as climate change mitigation or adaptation. It must do no significant harm ("DNSH") to any other objective, meet minimum social safeguards under OECD and UN human-rights standards and satisfy detailed technical screening criteria laid down in Delegated Acts. The Regulation divides activities into 'eligible' and 'aligned' based on whether they meet all four tests.
- Singapore-Asia Taxonomy: The Singapore-Asia Taxonomy3, launched in December 2023, offers a traffic-light classification: green for activities fully aligned with climate goals, amber for transition activities and ineligible for others. It covers eight sectors, including energy, transport and industry. Amber activities shall meet criteria such as, existing assets moving to net zero, clear decarbonisation pathways, science-based targets.
The taxonomy aligns with the International Platform on Sustainable Finance's (IPSF) Common Ground Taxonomy and seeks coherence with China's PBOC taxonomy. Compared with the EU model, Singapore-Asia places less emphasis on DNSH but more on regional context and cross-border alignment. The IFSCA Framework borrows the idea of transition-specific criteria without embedding a separate classification. It allows issuers to choose the taxonomy that best fits their context.
Key Points of Convergence and Divergence
All three frameworks share certain pillars: clear criteria for eligible activities, detailed disclosure, third-party review and a focus on transition along science-based pathways. The EU Taxonomy stands out for its detailed technical screening and DNSH tests. The Singapore-Asia Taxonomy offers a tiered approach that reflects emerging-market realities. The IFSCA Framework sits between these models. It grants issuers flexibility to pick a taxonomy but imposes robust requirements on governance, target setting and disclosure at the issuer level.
Expected Business Impact
The Framework will reshape how hard-to-abate industries access capital in IFSCs. Firms in sectors such as cement, steel, petrochemicals and aviation will gain access to debt instruments that recognise their unique transition needs. They will find financing costs closer to those for green bonds, as investor demand grows for transition-labelled assets.
The requirement for detailed transition plans and third-party review will raise standards of corporate climate strategy. Firms will strengthen board oversight, integrate climate risk into enterprise risk management and engage their value chains more actively. These changes may become hallmarks of credit-worthy issuers, boosting their reputations and credit ratings over time.
Disclosure obligations will give investors greater clarity on impact and risk. That transparency will attract institutional investors, such as pension funds and insurers, that demand high-quality data. Over time, a track record of meeting targets may allow issuers to tap larger pools of international capital.
At a market level, the transition bond regime may spur innovation in financial products. We can expect to see new derivatives linked to transition outcomes, sustainability-linked loans tailored to technology upgrades and risk transfer instruments for climate-related hazards. The growth of transition bonds may also encourage other regulators in India to adopt similar frameworks for domestic debt markets.
Overall, the Framework aims to attract more investors to sustainable finance, strengthen climate focus in corporate governance, and connect India's IFSCs with global transition finance. It represents a practical step towards a low-carbon economy, balancing the needs of high-emission sectors while advancing climate goals.
Conclusion
The IFSCA's Framework offers a clear, flexible and credible regime for financing the brown-to-green shift in hard-to-abate industries. By drawing on multiple taxonomies and mandating robust transition plans, independent review and ongoing reporting, it aligns with global best practice while serving regional needs. Comparisons with the EU and Singapore-Asia taxonomies show that the Framework occupies a middle path, combining rigour with flexibility. From a business perspective, issuers can tap new capital sources, deepen investor confidence and accelerate their own decarbonisation efforts. The Framework thus lays a foundation for sustainable growth in IFSCs and for India's wider transition to a net-zero future.
Footnotes
1. Framework for Transition Bonds, International Financial Services Centres Authority, available at: International Financial Services Centres Authority.
2. REGULATION (EU) 2023/2631 OF THE EUROPEAN PARLIAMENT AND THE COUNCIL of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds, European Union, available at: Regulation - EU - 2023/2631 - EN - EUR-Lex.
3. Singapore-Asia Taxonomy for Sustainable Finance | Finance | 2023 Edition, Monetary Authority of Singapore, available at: singaporeasia-taxonomy-updated.pdf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
