News and developments
CLASSIFICATION OF SUSTAINABILITY LINKED DERIVATIVES IN INDIA
At the COP 26 conference, India committed to meeting 50% of India’s energy needs via renewable sources by 2030 and achieving net-zero emissions by 2070. In light of the same, a consultation paper on Climate Change and Sustainable Finance was released by the banking regulator, the Reserve Bank of India (“RBI”) [1]. It highlights the key areas of interest for RBI regarding policy and regulatory initiatives to combat climate change risks. The aim is to assist the Government of India in meeting their climate change commitments.
India has not reported an SLD transaction between major market participants as of yet and there is a lack of a regulatory framework regarding SLDs. In fact, the Deputy Governor of RBI, M. Rajeshwar Rao, recently made a statement calling for a clear taxonomy or a classification system and a formal definition of ‘green finance’ in order to prevent greenwashing by the industry and establishing a list of environmentally sustainable economic activities. In his words: “There is a need for regulated entities to develop and implement comprehensive frameworks for understanding and assessing the potential impact of climate-related financial risks in their business strategy and operations. A taxonomy would also help banks and financial institutions in better assessing the climate risk in their loan portfolio, scaling up green and sustainable finance and mitigating the risk of greenwashing.”
Along with RBI, the capital market regulator, Securities and Exchange Board of India (“SEBI”) has also taken the issue of climate change seriously. SEBI has already introduced norms in 2022 [2] for green bonds. Green debt security is a debt security issued for raising funds that are to be utilised for projects falling under any of the following categories:
[1] https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/CLIMATERISK46CEE62999A4424BB73106676 5009961.PDF [2] SEBI | Issue of Green Debt Securities by an issuer under Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015 [3] SEBI | Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021
- renewable and sustainable energy;
- clean transportation;
- sustainable water management;
- climate change adaptation;
- energy efficiency;
- sustainable waste management; and
- sustainable land use. [3]
Authors:
Jayesh H Co-Founder, Juris Corp Email: [email protected] Smrithi Nair Partner, Juris Corp Email: [email protected] Yash Sangani Associate, Juris Corp Email: [email protected]Disclaimer:
This article and its contents are intended to provide general information on the topic covered herein and it shall, in no way, be treated as an exhaustive or comprehensive treatment of the subject scoped herein or as an advertisement about Juris Corp or any of its lawyers. Any graphics, images etc. used in this material is for informational purposes only and not as advertisement, promotions etc. of any organisations or institution. Further, this article and its contents in any of its form including facts specified, opinions expressed, views given etc. shall not be construed as a legal opinion of the author or that of Juris Corp (“the Firm”) directly or indirectly. The reader of this article must exercise due caution while using the contents of this article for any of their personal purposes such as, business implication, personal finances, investment decisions, reproduction of this article in any of the forum(s), circulating this article within the user group(s), publication of this article in any form or manner etc. It is strongly asserted herein that, if this article creates any financial / legal implication to the reader or user of this article, a formal opinion from a qualified professional be sought. The author(s) and the Firm hereby expressly disclaims any and all claims, losses, damages, adversity in any of its form whether financial or otherwise arising to the reader or user of this article.[1] https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/CLIMATERISK46CEE62999A4424BB73106676 5009961.PDF [2] SEBI | Issue of Green Debt Securities by an issuer under Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015 [3] SEBI | Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021