Green Bonds: When Climate Ambition Meets Credit and Covenant Risk
Current position
SEBI’s debt-securities framework requires specified disclosures for green debt securities, including eligible green categories, project evaluation, management of proceeds, reporting and external review or certification requirements. The current master circular and issue documents govern the exact obligation. Ordinary credit, listing and disclosure duties continue to apply.
How it works
Investors should analyse two tracks: credit and green integrity. Credit analysis covers cash flow, leverage, security, covenants and repayment. Green analysis covers project eligibility, allocation, measurement and adverse impacts.
Unallocated proceeds may be temporarily invested under disclosed policy. The issuer should report allocation and, where feasible, impact using consistent methodology.
A breach of green commitment may trigger disclosure, remediation or contractual consequences only as provided by law and the issue terms. It does not automatically accelerate debt unless documents say so.
| Issue | Current position | Why it matters |
|---|---|---|
| Instrument | Debt security with specified green use of proceeds | Credit risk remains issuer risk |
| Core evidence | Allocation and impact reporting | Track proceeds after issue |
| Integrity safeguard | Review, methodology and disclosure | Label alone is insufficient |
Practical example
A power company issues ₹1,000 crore of green bonds for renewable projects. It allocates ₹700 crore in year one and temporarily invests ₹300 crore. Investors should check the permitted temporary investments, project list, allocation report and generation methodology while separately assessing whether the issuer can service interest and principal.
Action checklist
- Read the offer document, eligible project taxonomy and exclusions.
- Review issuer leverage, cash flow, security and covenants.
- Track allocation of proceeds and temporary investments.
- Compare impact metrics with methodology and assurance.
- Check remedies for misallocation or changed project use.
Evidence and document checklist
- Offer document and stock-exchange filing.
- Use-of-proceeds and project evaluation policy.
- Allocation and impact reports.
- External review or assurance report.
- Trustee, covenant and payment records.
Common mistakes
- Treating green as investment grade.
- Comparing impact numbers without methodology.
- Assuming all proceeds are allocated on issue date.
- Ignoring refinancing versus new-project use.
Red flags
- Eligible category is vague.
- Impact report omits baseline or period.
- Proceeds are moved to general corporate use without disclosure.
- External reviewer has an undisclosed conflict.
Escalation and complaint route
Investors should use issuer, trustee and exchange grievance routes and may use SCORES for eligible securities-market complaints. Misleading green claims and covenant breaches require document-specific legal and financial assessment.