Sustainability-Linked Bonds in India

A green bond tells investors exactly which wind farm or solar park their money will fund. A sustainability-linked bond tells investors nothing about where the money goes, only what happens to the coupon if the issuer misses a stated sustainability target.

India's bond market has used both instruments for years, but only recently gained a dedicated regulatory framework for the second. SEBI has regulated green bonds since 2017; sustainability-linked bonds, along with social and sustainability bonds, received their own SEBI framework only on 5 June 2025, through a circular addressing ESG debt securities other than green bonds.

This article explains how the two instruments actually differ in structure, what SEBI's 2025 framework requires of SLB issuers, and how Indian companies have used SLBs so far.

A bond's ESG label describes a different thing depending on which label it carries. Green, social and sustainability bonds are use-of-proceeds instruments: the money raised must be allocated to a defined category of eligible projects, environmental for green bonds, social for social bonds, a mix of both for sustainability bonds, and issuers report annually on that allocation and its impact. SEBI introduced its green bond framework in 2017, and issuance since then has been uneven, ranging from 667 crore rupees in 2017 to a peak near 1,935 crore rupees in 2022.

Sustainability-linked bonds work differently: proceeds can be used for any general corporate purpose, and the bond's structure instead ties the issuer's financing cost to whether it meets predefined sustainability performance targets. Indian corporates including State Bank of India, Power Finance Corporation and Adani Renewable Energy have issued sustainability and sustainability-linked bonds since the late 2010s, mostly in international markets, though domestic rupee issuance has grown.

SEBI only formalised rules for these newer instruments on 5 June 2025, through its Framework for ESG Debt Securities other than green debt securities.

The core difference between the two instruments is structural rather than a matter of ambition: a green bond commits money to specific projects, while a sustainability-linked bond commits the issuer's cost of capital to a measurable outcome.

With SEBI's 2025 framework now in place, Indian issuers have a formal path to structure SLBs domestically rather than relying only on international markets, though whether that shifts India's still-small SLB share remains to be seen.