SEBI’s ESG Bonds Framework Prompts Early Market Response From L&T

Within weeks of the Securities and Exchange Board of India (“SEBI”) introducing its Framework for Environment, Social, and Governance (“ESG”) Debt Securities (excluding green debt securities) (“ESG Framework”), Larsen & Toubro (“L&T”) became India’s first company to list bonds under the new ESG Framework. As part of its bond offering, L&T has set environmental performance targets, as required under the ESG Framework. 

In recent years, investors around the world have been looking beyond just profits. They are now placing more value on investments that have a positive impact on the environment and the well-being and development of society. India took an early step in this direction by introducing the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”). The NCS Regulations made it possible for companies to issue ESG-related debt in India. However, until recently, there was a lack of detailed guidance on how these bonds (other than green bonds) should be structured and implemented. 

SEBI’s new ESG Framework fills this gap. It covers all ESG-linked bonds except green bonds, which continue to be regulated under a separate 2017 framework (updated in 2023). The ESG Framework provides clarity to issuers and investors, making it easier to raise funds for a variety of social and sustainability-focused goals. 

Under the ESG Framework, such bonds fall into three main categories: 

• Social bonds: Issued for raising funds that are to be utilized for achievement of positive social outcomes. Examples of projects that can be funded through social bonds are affordable housing, food security programmes, employment generation programmes, etc.  

• Sustainability bonds: Used for the achievement of projects with a hybrid mix of social and environmental outcomes. 

• Sustainability-linked bonds: Instead of being tied to how the money is spent, the financial and / pr structural terms of these bonds are linked to whether the issuing company meets certain sustainability performance targets. 

Why This Matters 

L&T’s early move under the new ESG Framework is a significant signal—it shows that Indian companies are ready to tap into this evolving market. For investors, it marks the beginning of a more structured and transparent approach to ESG-focused investment in India.  

SEBI’s initiative brings India closer in line with global trends, where ESG investing is growing rapidly. By clearly defining the types of ESG bonds and setting rules for how they should be issued and monitored, the Framework gives both issuers and investors more confidence. Although Indian firms have tapped into ESG debt markets abroad, L&T’s quick issuance reflects that trust that investors now have in India’s own regulatory framework. 

What More Needs to Be Done 

The ESG Framework is a positive start, but additional measures are essential to build a well-functioning ESG debt market in India: 

• Wider Awareness and Capacity Building: Issuers, especially smaller companies, need support to understand and adopt ESG-linked financing. 

• Standardization of Metrics: More guidance and clarity on how sustainability targets and key performance indicators should be defined, measured, and disclosed would help improve consistency and standardization across issuances. 

• Incentives and Market Support: Policy incentives or regulatory measures could encourage more companies to consider debt instruments under the ESG Framework. 

Conclusion 

SEBI’s ESG Framework is a timely and much-needed development for India's capital markets. It brings structure to a growing area of investment and opens new doors for companies to raise funds for impactful initiatives. L&T’s pioneering move sets the tone, but for the market to truly flourish, more participation, clearer standards, and ongoing support will be essential. With the right push, ESG debt securities could become a powerful tool in India’s sustainable growth journey.