DISCLOSURE REQUIREMENTS FOR GREEN DEPOSITS IN INDIA

In India, there are several regulations related to fixed deposits that are used to fund environmentally friendly projects also known as green deposits. The RBI framework for acceptance of Green Deposits stipulate that proceeds raised from green deposits to be lent to sectors  based on the official Indian green taxonomy such as renewable energy, energy efficiency, clean transportation, green buildings, and terrestrial and aquatic biodiversity conversation. There is also a negative end-use list, restricting the use of such proceeds for activities including nuclear power generation, direct waste incineration, landfill projects, or projects where the core energy source is fossil fuel-based. This helps investors make informed decisions about investing in green deposits. There are specific disclosure requirements for green deposits, as mandated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). Here are the key disclosure requirements:

1.     Use of Proceeds: The issuer of green deposits must disclose the intended use of the funds raised through the deposit. This should include a description of the eligible green projects that will be funded, along with the expected environmental benefits. The reporting entities are required to make such disclosures in their Annual Financial Statements on the portfolio-level information regarding the use of the green deposit funds.

2.     Project Evaluation and Selection: The issuer must disclose the process used for evaluating and selecting eligible green projects. This should include the criteria used to assess the environmental benefits of the projects and the methodology used for projectselection.

3.     Management of Proceeds: The issuer must disclose how the funds raised through green deposits will be managed. This should include details on how the funds will be tracked and allocated to eligible green projects, as well as the expected timeframe for allocation. The Financing framework specifying the above aspects are required to be made available on the website of the Regulated Entities.

4.     Greenwashing: In order to address greenwashing concerns, a third-party verification of allocation of funds and an impact assessment of funds lent to or invested in green activities or projects is contemplated.

5.     Third-Party Verification/Assurance:The allocation of funds raised through green deposits by Regulated Entitiesare subject to an independent Third-Party Verification/Assurance to be done on an annual basis. The third-party assessment does not absolve the Regulated Entities of their responsibility regarding the end-use of funds, for which the laid down procedures of internal checks and balances would have to be followed as in the case of other loans. The report of the Third-Party Verification/Assurance and Impact Assessment Report  is to made available on the website of the Regulated Entities.

6.      Impact Assessment: An annual assessment of the impact associated with the funds lent for or invested in green finance activities/projects is required to be disclosed through an Impact Assessment Report. This would include both qualitative and quantitative information, such as the amount of greenhouse gas emissions reduced or the amount of renewable energy generated. In case Regulated Entities are unable to quantify the impact of their lending/investment, they shall disclose, at the minimum, the reasons, the difficulties encountered, and the time-bound future plans to address the same. Impact Assessment was on a voluntary basis for the financial year 2023-24, but is mandatory from the financial year 2024-25 onwards.

7.     Review Report: Reporting entities are required to place before its Board of Directors a report covering the amount raised under green deposits during the previous financial year, list of green activities/projects to which proceeds have been allocated, along with a brief description of the projects. Also the amounts allocated to the eligible green activities/projects and a copy of the Third-Party Verification/Assurance Report and the Impact Assessment Report. 

8.     Compliance with the Prevention of Money Laundering Act (PMLA): Green deposits in India are subject to the provisions of the Prevention of Money Laundering Act (PMLA), just like any other financial instrument. This includes 1. Know Your Customer (KYC) norms, verifying the identity of the depositor and maintaining records of all transactions. 2. Reporting Requirements: Banks and financial institutions must report any suspicious transactions or activities related to green deposits to the Financial Intelligence Unit-India (FIU-IND), as mandated by the PMLA. 3. Maintenance of Records: Banks and financial institutions must maintain records of all transactions related to green deposits for a period of five years from the date of transaction, as required under the PMLA. 4. Due Diligence: Banks and financial institutions must conduct due diligence on the depositors and the ultimate beneficial owners of the funds invested in green deposits, as per the PMLA guidelines. 5. Sanctions for Non-Compliance: Non-compliance with the provisions of the PMLA can result in significant penalties and legal consequences for banks and financial institutions, including fines and imprisonment for responsible individuals.

Continuous Disclosure:The issuer must provide continuous disclosure on the use of proceeds and the environmental impact of the funded projects throughout the tenure of the green deposit.These disclosure requirements are designed to ensure transparency and accountability in the use of funds raised through green deposits. They help investors make informed decisions about investing in green deposits and ensure that the funds are being used for their intended purpose of supporting environmentally sustainable projects.