ESG Debt Regulations to be Stricter, SEBI Requires Third-Party Certification

India’s market regulator, SEBI, just took a major step to make sure ESG (Environmental, Social, and Governance) investments actually live up to their name. On June 5, 2025, it rolled out a new set of rules for issuing and listing ESG debt securities. One of the biggest changes? Issuers now need a certified third-party to verify that their ESG-labelled debt is truly being used for sustainable goals. In other words, no more just slapping on a green label and calling it a day, SEBI wants proof.

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Broadening What Counts as ESG Debt

These new rules go beyond the traditional green bonds. Now, they also cover social bonds, sustainable bonds, and sustainability-linked bonds. Green bonds are still under their own separate set of rules, but this expansion helps India catch up with global standards. It also gives companies more options to fund everything from renewable energy and clean transport to health, education, and inclusive development.

The big picture? A more diverse, purpose-driven debt market, and one that appeals to investors who genuinely want their money to make a difference.

Third-Party Checks: No More “Purpose-Washing”

A major highlight of this framework is mandatory third-party certification. That means independent reviewers will need to sign off on how the money is used, verify outcomes, and ensure transparency. Whether it’s a rating, certification, or opinion, these outside validators will help keep everyone honest.

Why does this matter? Because there’s growing concern over “purpose-washing”, when companies say they’re going green or doing social good, but the reality doesn't match the pitch. SEBI’s hoping that this added layer of accountability will boost investor trust.

Clearer, More Transparent Reporting

SEBI is also turning up the heat on disclosure. Companies will now have to spell out exactly how they plan to use the funds, what kind of projects they’re backing, and what impact they expect to make. And the reporting doesn’t stop once the bond is issued, annual updates and impact reports will be required to keep investors in the loop.

This is all about giving investors better information so they can make smarter, more ethical decisions, and holding issuers accountable from start to finish.

Regulating ESG Ratings, Too

Alongside the ESG debt rules, SEBI has introduced guidelines for ESG rating providers. These agencies will now need official certification and will have to follow strict operating standards. The goal? Make ESG ratings more reliable, reduce conflicts of interest, and create a level playing field.

There are even new rules for pulling a rating if it becomes outdated or irrelevant, for example, if a company doesn’t submit a proper sustainability report or there’s no demand for the rating anymore.

Mixed Reactions from the Industry

So how’s the market reacting? Overall, there’s cautious optimism. Many in the finance and sustainability space see this as a strong move toward more credible ESG investing, and a way for India to stay in sync with global practices.

That said, some experts worry it could be tough on smaller issuers. Meeting these new standards will take time, money, and resources. SEBI says it’s open to dialogue and wants to work with stakeholders to make the rollout smoother.

What’s Next?

With these rules now in place, the real test will be in how well they’re implemented. Success will depend on solid execution, active participation from industry players, and the ability to adapt to new challenges as they arise.

If it all goes as planned, India could see a big boost in ESG-focused investments, and make real progress toward its sustainable development goals.