Foreign Monetary Policy and Indian Trade: Expanding ESG Debt Framework
Future of ESG Debt in India
India's market regulator intends to expand the scope of its sustainable finance framework to embrace a wider array of products, which could significantly boost ESG-labeled instruments across Asia. The Securities and Exchange Board of India (SEBI) aims to consult on introducing social bonds along with sustainable and sustainability-linked bonds, complementing the existing suite of environmental, social, and governance debt.
Consultation and New Opportunities
Proposals also include the addition of eligible asset-backed securities and a mandate for independent external reviews of all ESG debt, according to a consultation paper released on Friday. Xuan Sheng Ou Yong, sustainable fixed income lead for Asia Pacific at BNP Paribas Asset Management in Singapore, remarked that this proposal represents a positive move for the market, as it opens avenues to funnel fixed income capital towards emerging issuers and their impactful projects beyond just green bonds.
Record Issuance Amid Regional Comparisons
India's ESG debt issuance this year has reached $15.6 billion, exceeding the previous annual record set in 2021, as reported by Bloomberg Intelligence. While this is a substantial milestone, the volume remains lower than other major Asian markets like China and Japan. Currently, the regulatory framework restricts products to initiatives solely related to environmental sustainability, such as renewable energy and water management. The anticipated changes would enable issuers to utilize debt for a wider array of activities, as noted in SEBI’s documentation.
Impact on Global Market Dynamics
A stronger market for ESG debt in India aligns with Prime Minister Narendra Modi's broader emphasis on green growth, and could serve as a counterbalance to the noticeable decline in Chinese issuances that are affecting the global market. Notably, ESG-labeled bonds saw a roughly one-third drop in volume during the second quarter year-over-year, as highlighted by Sustainable Fitch last month. The consultation will remain open until September 6.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.