IMPACT OF ESG DISCLOSURES ON INDIAN CORPORATE STRUCTURES 

This article is written by Sonali Panigrahi, Lingaraj Law College, 2^nd year LLB Student, during her internship at LeDroit India. 

Scope of the Article- This article explores the numerous impacts of ESG (Environmental, Social, and Governance) disclosures on Indian corporate structures. It analyses the evolution of ESG reporting in India, examines its integration with existing legal and regulatory frameworks, and evaluates its influence on governance mechanisms, investor behavior, and corporate operations. The discussion also highlights key case studies of Indian companies, the challenges in implementation, global comparative trends, and future policy recommendations. 

Content – 

1. Introduction 
2. Evolution of ESG and Sustainability Reporting in India
3. Legal and Regulatory Framework governing ESG disclosures
4. Impact on Corporate structures and operations
5. Investor and Market behaviour
6. Comparative Global perspective
7. Challenges in implementation
8. The Way forward
9. Conclusion

ABSTRACT-

Environmental, Social, and Governance (ESG) disclosures are emerging as a cornerstone of corporate governance and sustainability reporting in India. As global business paradigms shift toward accountability and transparency, Indian companies are embracing ESG frameworks that align with long-term environmental and social responsibility. The introduction of the Business Responsibility and Sustainability Report (BRSR) by SEBI and the statutory obligations under the Companies Act, 2013, have transformed ESG disclosures from voluntary practices into mandatory governance instruments.

This article explores how ESG compliance is reshaping corporate structures, influencing board composition, investor confidence, and operational ethics. Through the integration of legal mandates, landmark case laws, and comparative global perspectives, the article analyses the legal and functional implications of ESG disclosure frameworks. It concludes that ESG transparency is no longer an ornamental corporate exercise but a fundamental pillar of sustainable capitalism, redefining how Indian companies balance profit, people, and the planet. 

Keywords: Environmental, Social, and Governance (ESG) | corporate governance | sustainability reporting | Indian companies 

1. INTRODUCTION

 The emergence of Environmental, Social, and Governance (ESG) principles onset a fundamental change in global corporate behaviour since the industrial revolution. As corporations are moving their focus beyond profit maximization, ESG frameworks have become the foundation of responsible corporate governance and sustainability reporting. The crux of ESG lies in balancing financial performance with environmental stewardship, social equity and ethical governance. It ensures that businesses operate not simply as profit making entities but as accountable social participants.

 Globally, the importance of ESG disclosures has grown wantonly succeeding the Paris Agreement of 2015 and the United Nations Sustainable Development Goals (SDGs), which urges corporate responsibility in achieving sustainable development. International reporting standards such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate Related Financial Disclosures (TCFD) have set the tone for infocentric and transparent reporting. As India is an emerging economic powerhouse, which is currently balancing industrial growth with environmental and social challenges, this realignment toward ESG integration carries innovative potential.

The Indian government and regulatory bodies have anticipatorily responded to this shift. The Companies Act, 2013, through its Section 135 on Corporate Social Responsibility (CSR), institutionalized the social component of ESG, while the Securities and Exchange Board of India (SEBI) made Business Responsibility and Sustainability Reporting (BRSR) mandatory for the top 1000 listed entities. This points to an intentional move from voluntary sustainability practices to legally binding accountability frameworks. 

ESG disclosures are not restricted to compliance or philanthropy. They influence corporate structures, internal management hierarchies, and strategic decision making. Boardrooms are now required to consider climate risk, ethical supply chains, gender inclusivity, and stakeholder welfare as central governance parameters. Second of all, investors, lenders, and regulators increasingly evaluate corporate credibility through ESG performance metrics, treating them as reliable indicators of long term resilience.

This article examines the impact of ESG disclosures on Indian corporate structures: how statutory mandates, judicial interpretations, and market pressures collectively reshape business governance, operations, and investor behaviour. It aims to demonstrate that ESG disclosures are not a peripheral reporting requirement but an integral pillar of modern corporate identity, driving India toward a sustainable and equitable economic future.

2. EVOLUTION OF ESG AND SUSTAINABILITY REPORTING IN INDIA 

In the context of India, the evolution of ESG and Sustainability reporting stands at a crossroad between corporate regulation, environmental jurisprudence and international sustainability standards. Historically, Indian corporate governance focused primarily on financial disclosure and shareholder value. However, over the past two decades, the interplay of globalization, environmental activism, judicial intervention, and investor awareness has transformed corporate accountability into a multi dimensional concept.

2.1 Early Developments-

The roots of ESG in India trace back to the traditional notion of corporate philanthropy, where business families like the Tatas, Birlas, and Bajajs undertook social initiatives voluntarily. The concept acquired statutory force with the Companies Act, 2013, introducing Section 135, which made Corporate Social Responsibility (CSR) mandatory for companies exceeding prescribed financial thresholds.

This provision required qualifying companies to spend at least 2% of their average net profits on social and environmental causes. Although CSR focused on the ‘S’ (social) aspect of ESG, it established the foundational principle of corporate accountability to the community. The Act also mandated the constitution of a CSR Committee within the board structure. It was the first time when social responsibility was formally embedded within a company’s governance mechanism.

2.2 The Role of SEBI and Business Responsibility Reports:

The Securities and Exchange Board of India played a pivotal role in extending ESG principles to publicly listed entities. In 2012, SEBI introduced the Business Responsibility Report (BRR) for the top 100 listed companies based on the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs) issued by the Ministry of Corporate Affairs (MCA). This was a turning point as for the first time, companies were required to disclose non-financial performance indicators, such as their environmental practices, employee welfare, gender policies, and stakeholder engagement. Subsequently, the MCA revised the NVGs into the National Guidelines on Responsible Business Conduct (NGRBC) in 2019, aligning them with the UN Sustainable Development Goals (SDGs).

SEBI followed suit in 2021, mandating the more advanced Business Responsibility and Sustainability Report (BRSR) for the top 1000 listed companies effective from FY 2022–23. The BRSR framework demands quantitative and qualitative disclosure on parameters such as greenhouse gas emissions, renewable energy usage, waste management, human rights policies, anti-corruption practices, and gender diversity. Companies are also encouraged to adopt integrated reporting formats, combining financial and ESG data to provide a holistic picture of business performance.

2.3 Judicial Recognition of Environmental and Social Accountability:

The Indian judiciary has significantly reinforced the ESG ethos through its progressive environmental jurisprudence. In M.C. Mehta v. Union of India 1988 AIR 1115, the Supreme Court established the principle of absolute liability for enterprises engaged in hazardous activities, asserting that industrial growth must not come at the cost of environmental degradation. In Indian Council for Enviro-Legal Action v. Union of India (1996) 3 SCC 212, the Court further stressed on the ‘polluter pays’ principle, emphasizing corporate accountability for environmental harm. Similarly, in Vellore Citizens Welfare Forum v. Union of India (1996) 5 SCC 647, the precautionary principle and sustainable development doctrine were formally recognized as part of Indian law under Article 21 of the Constitution.

2.4 Global Influences and Investor-Driven Momentum: Indian regulatory reforms were also influenced by international developments such as the Paris Agreement (2015), Task Force on Climate-related Financial Disclosures (TCFD), and the Global Reporting Initiative (GRI) standards. Institutional investors like BlackRock and Norges Bank Investment Management began prioritizing ESG-compliant portfolios, compelling Indian corporates to improve transparency and governance practices. In addition to that, ESG-focused investment funds in India such as the SBI Magnum Equity ESG Fund and Axis ESG Equity Fund, have reinforced market incentives for sustainable business conduct.

2.5 Recent Regulatory Expansion: In 2023, SEBI issued further clarifications allowing assurance providers to verify BRSR disclosures, enhancing the reliability of ESG data. The Reserve Bank of India (RBI) has also begun integrating climate risk assessments into financial supervision. Meanwhile, the Ministry of Corporate Affairs has been exploring a unified Sustainability Reporting Framework that harmonizes various domestic and international disclosure requirements.

3. LEGAL AND REGULATORY FRAMEWORK GOVERNING ESG DISCLOSURES IN INDIA

The Indian legal architecture governing ESG disclosures is evolving into a comprehensive ecosystem of statutory, regulatory, and voluntary frameworks. It is a mixture of corporate governance, environmental protection, and social responsibility. The framework is primarily anchored in the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and CSR Rules, 2014, supplemented by various judicial interpretations and international reporting standards.

3.1 The Companies Act, 2013 and the CSR Mandate: The Companies Act, 2013 marked a watershed moment by introducing Corporate Social Responsibility (CSR) under Section 135, making India the first country to legislate mandatory social spending by corporations. Under Section 135, companies meeting the following criteria must constitute a CSR Committee of the Board:

• Net worth of ₹500 crore or more, or
• Turnover of ₹1000 crore or more, or
• Net profit of ₹5 crore or more during any financial year.

Such companies must spend at least 2% of their average net profits from the preceding three financial years on CSR activities specified in Schedule VII, which includes poverty eradication, environmental sustainability, gender equality, and rural development projects. Additionally, Rule 8 of the Companies (CSR Policy) Rules, 2014 makes it mandatory for the inclusion of an annual CSR report in the Board’s Report, thereby institutionalising the social dimension of ESG within corporate structures. Non compliance attracts penalties under the Companies (Amendment) Act, 2020, which converted earlier defaults into civil liabilities, thus tightening enforcement.

3.2 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:

The SEBI (LODR) Regulations, 2015 serve as the primary regulatory instrument for ESG disclosures among listed entities. Under Regulation 34(2)(f), companies are required to include a Business Responsibility and Sustainability Report (BRSR) in their annual reports. In May 2021, SEBI issued a circular mandating the BRSR format for the top 1000 listed companies (by market capitalization), effective FY 2022–23. This replaced the earlier Business Responsibility Report (BRR) and integrated the principles of the National Guidelines on Responsible Business Conduct (NGRBC) issued by the Ministry of Corporate Affairs.

The BRSR demands disclosure of quantitative and qualitative data across nine principles, including:

• Ethics, transparency, and accountability;
• Sustainable product lifecycle management;
• Employee well-being;
• Stakeholder engagement;
• Human rights;
• Environment and climate action;
• Public policy advocacy; and
• Inclusive growth and equitable development.

Importantly, SEBI has encouraged BRSR Core. It is a set of key ESG metrics that can be externally assured by independent agencies, ensuring data reliability and reducing greenwashing risks.

3.3 The National Guidelines on Responsible Business Conduct (NGRBC), 2019: The NGRBC (2019), issued by the Ministry of Corporate Affairs, forms the philosophical foundation of India’s ESG regime. These guidelines revise the earlier National Voluntary Guidelines (2011) and align with the UN Guiding Principles on Business and Human Rights and the Sustainable Development Goals (SDGs). The NGRBC sets out nine principles of responsible business conduct, ranging from ethics and transparency to environmental stewardship and inclusive growth. It emphasises the “triple bottom line” – people, planet, and profit, as the guiding framework for Indian corporations.

3.4 Role of the Reserve Bank of India (RBI) and Financial Regulators: The Reserve Bank of India (RBI) has recognised climate change and sustainability risks as emerging concerns for the financial sector. In April 2023, the RBI released its Discussion Paper on Climate Risk and Sustainable Finance, proposing a roadmap for integrating ESG risk assessment into banking supervision. Banks and Non-Banking Financial Companies are encouraged to assess exposure to carbon-intensive sectors, align lending policies with green finance principles, and adopt Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. Further, the Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA) have also begun incorporating ESG considerations into investment decision frameworks for institutional investors.

3.5 Judicial and Constitutional Dimensions:

The Indian judiciary has played a transformative role in reinforcing ESG norms through constitutional interpretation. Article 21 of the Constitution guaranteeing the right to life, has been expansively interpreted to include the right to a clean and healthy environment. In M.C. Mehta v. Kamal Nath AIRONLINE 1996 SC 711, the Supreme Court invoked the public trust doctrine, holding that natural resources are held by the State in trust for the people and must be protected from corporate exploitation.

Similarly, in T.N. Godavarman Thirumulpad v. Union of India (2002) AIRONLINE 2006 SC 167, the Court emphasized corporate accountability in forest conservation and environmental impact assessment. These precedents have effectively constitutionalized environmental and social responsibility, extending ESG accountability beyond statutory compliance to fundamental rights and duties under Articles 21, 48A, and 51A(g).

3.6 Alignment with International ESG Frameworks: India’s ESG architecture also aligns closely with international standards, ensuring global comparability and investor confidence. Key frameworks include:

• Global Reporting Initiative (GRI) – Promotes standardised sustainability metrics.
• Task Force on Climate-related Financial Disclosures (TCFD) – Guides companies on disclosing climate-related financial risks.
• UN Sustainable Development Goals (SDGs) – Integrates ESG objectives into national and corporate development strategies.
• OECD Guidelines for Multinational Enterprises – Reinforces responsible business conduct in global supply chains.

4. IMPACT OF ESG DISCLOSURES ON INDIAN CORPORATE STRUCTURES

The enforcement of ESG disclosures has transformed Indian corporate structures from traditionally profit-driven entities into multidimensional institutions accountable to a broader set of stakeholders including regulators, investors, employees, and society. ESG integration has altered governance hierarchies, decision-making processes, risk management, and strategic orientation. 

4.1 Transformation of Corporate Governance Models: The most visible impact of ESG disclosure requirements lies in the restructuring of corporate governance systems. Traditionally, the Board of Directors was primarily responsible for financial oversight and shareholder value. However, ESG mandates, especially through BRSR and Section 135 of the Companies Act, 2013, have extended board accountability to environmental and social performance. Under SEBI’s guidelines, boards are now required to:

• Establish dedicated Sustainability Committees or expand the mandate of existing CSR Committees;
• Formulate ESG policies aligned with the National Guidelines on Responsible Business Conduct (NGRBC);
• Oversee the implementation and assurance of ESG disclosures; and
• Ensure transparent reporting in annual statements.

Further, ESG-linked executive compensation is emerging as a trend, where CEO and managerial performance are tied to sustainability goals, thereby embedding accountability into corporate leadership itself.

4.2 Integration of ESG into Risk Management Frameworks:

ESG disclosures have also redefined corporate risk assessment frameworks. Environmental and social risks, previously treated as externalities, are now recognised as material financial risks. As an example, the Reserve Bank of India’s 2023 Discussion Paper on Climate Risk and Sustainable Finance encourages banks and NBFCs to integrate climate related risk assessment into credit evaluation and stress testing.

As a result, companies dependent on high emission operations face increased cost of capital or restricted lending, prompting internal restructuring to achieve sustainability benchmarks. Also, investor driven ESG ratings by agencies such as MSCI ESG Ratings, Refinitiv, and CRISIL ESG Evaluations influence stock performance and valuation. This external scrutiny compels Indian corporations to institutionalise internal ESG audit mechanisms to ensure compliance, accuracy, and continuous improvement.

4.3 Influence on Corporate Reporting and Transparency: ESG disclosures have brought an unprecedented level of transparency into Indian corporate reporting practices. The Business Responsibility and Sustainability Report (BRSR) requires companies to disclose detailed quantitative data on energy consumption, greenhouse gas emissions, waste management, diversity ratios, and ethical governance measures. This has prompted companies to Adopt integrated reporting (IR) combining financial and non-financial performance indicators; Develop data management systems capable of capturing granular ESG metrics; and Publish sustainability reports aligned with Global Reporting Initiative (GRI) and Task Force on Climate-related Financial Disclosures (TCFD) standards.  Additionally, the concept of external assurance, wherein third-party auditors verify ESG disclosures  has enhanced the credibility of reported data. This reduces “greenwashing” risks and reinforces investor trust.

4.4 Shifts in Investment Patterns and Capital Allocation:

The rapid rise of ESG-conscious investors has significantly altered corporate financing and capital structuring. Investors now assess a company’s ESG score alongside traditional financial indicators before allocating funds. According to SEBI’s data, ESG-themed mutual funds in India such as the Axis ESG Equity Fund, SBI Magnum ESG Fund, and ICICI Prudential ESG Fund, collectively manage thousands of crores in assets. The National Stock Exchange (NSE) also introduced the Nifty100 ESG Sector Leaders Index, enabling ESG-compliant companies to attract more institutional capital. This has created a market-driven incentive for Indian companies to embed ESG factors into their governance frameworks. Companies failing to align with sustainability norms face not only regulatory scrutiny but also diminished investor confidence and potential capital flight.

4.5 Impact on Organisational Culture and Human Resource Policies: The social dimension of ESG has reshaped corporate culture by emphasising inclusivity, diversity, and ethical employment practices. Disclosures under Principle 3 and 5 of the BRSR compel companies to report on employee welfare, gender diversity, human rights, and grievance redressal mechanisms.

As a result, organisations have increased representation of women and minorities in leadership roles, strengthened internal anti-harassment and whistleblower policies, adopted equal pay and non-discrimination standards and linked performance appraisals to ethical conduct and community contribution.

5. INVESTOR AND MARKET BEHAVIOUR TOWARD ESG IN INDIA

The integration of these principles into the Indian financial ecosystem has changed how investors evaluate corporate performance. Earlier, investors relied primarily on profitability, revenue growth, and market capitalization to determine value. However, with the rise of sustainable finance and global climate commitments, ESG metrics have emerged as determinants of risk, resilience, and long-term profitability.

5.1 ESG as a Risk Mitigation Tool: Investors increasingly recognize that weak ESG compliance can lead to reputational damage, regulatory penalties, and market volatility. The Task Force on Climate-related Financial Disclosures (TCFD) highlights climate risk as a significant financial threat. Indian institutional investors such as the Life Insurance Corporation (LIC) and SBI Mutual Fund now incorporate ESG performance into their due diligence frameworks. According to SEBI’s 2023 circular on BRSR Core, entities must disclose ESG metrics that influence investment decisions — including carbon emissions, labour practices, and governance standards.

5.2 Rise of ESG themed Investment Funds: In recent years, India has witnessed the emergence of ESG centric funds such as:

• SBI Magnum Equity ESG Fund
• Axis ESG Equity Fund
• ICICI Prudential ESG Fund

These funds demonstrate a growing investor appetite for sustainability-linked assets. Data from the Association of Mutual Funds in India (AMFI) reveals that ESG mutual fund inflows rose tremendously between 2021 and 2024. This surge indicates that both retail and institutional investors view ESG compliance not as philanthropy, but as strategic financial prudence.

5.3 Global Investors’ Influence on Indian Corporates: Foreign investors, particularly sovereign wealth funds and global private equity firms, impose strict ESG conditions before capital infusion. For example, Norway’s Government Pension Fund Global and BlackRock have publicly committed to divesting from entities with poor sustainability performance. Consequently, Indian companies seeking global funding increasingly align their governance and environmental practices with OECD and EU sustainability standards.

5.4 ESG Ratings and Market Perception: Credit rating agencies now integrate ESG parameters into corporate credit scores. Indian agencies such as CRISIL, ICRA, and CARE Ratings offer ESG evaluation services that assess environmental and governance practices. High ESG ratings attract investors seeking stability, while poor scores lead to higher borrowing costs. This has created a market incentive for companies to institutionalize sustainability in their corporate structures.

6. COMPARATIVE GLOBAL PERSPECTIVE ON ESG DISCLOSURES

The influence of ESG disclosures is now global, yet the scope, enforcement mechanisms, and disclosure quality vary significantly across jurisdictions. A comparative perspective allows us to situate India’s ESG evolution within the broader international context, highlighting the unique challenges and opportunities in aligning domestic corporate structures with global sustainability norms.

6.1 The European Union:

The EU remains a global frontrunner in ESG regulation. The Corporate Sustainability Reporting Directive (CSRD), implemented in 2023, mandates comprehensive sustainability disclosures for over 50,000 companies operating in or trading with the EU. It replaces the earlier Non Financial Reporting Directive (NFRD), expanding coverage to small and medium enterprises (SMEs) as well.

Companies are required to report in line with the European Sustainability Reporting Standards (ESRS). It covers carbon footprint, diversity, board accountability, and human rights. On the top of that, the EU integrates ESG compliance directly into financial law, ensuring that investors under the Sustainable Finance Disclosure Regulation (SFDR) assess ESG risks before making investments. By contrast, India’s Business Responsibility and Sustainability Report (BRSR) currently applies only to the top 1,000 listed companies. 

6.2 The United States:

Unlike the EU’s legislative approach, the United States follows a market-oriented ESG ecosystem, driven by investors, shareholder activism, and the Securities and Exchange Commission (SEC)’s evolving disclosure guidelines. In March 2024, the SEC finalized its Climate Related Disclosure Rule, requiring listed companies to report greenhouse gas emissions, climate-related risks, and governance mechanisms to mitigate them.

However, U.S. ESG policy remains politically contentious, with varying state-level stances, with some promoting ESG investments (e.g., California and New York), while others (e.g., Texas and Florida) restricting them under “anti-ESG” legislation. India’s regulatory stance resembles the U.S. model in its phased, disclosure-based evolution, yet differs in intent, for India’s focus lies in societal equity and environmental responsibility, while the U.S. prioritizes investor transparency and climate risk assessment.

6.3 The United Kingdom: The UK Corporate Governance Code (2018) and Companies Act 2006 form the backbone of the country’s ESG landscape. The Streamlined Energy and Carbon Reporting (SECR) regulations require companies to disclose annual energy consumption and emissions, emphasizing board-level accountability. The UK’s emphasis on governance and ethical business conduct finds a close parallel in India’s corporate law, particularly under the Companies Act, 2013 and SEBI’s Listing Obligations and Disclosure Requirements (LODR). However, the UK’s integration of ESG metrics into director fiduciary duties and executive compensation structures sets a precedent India is yet to adopt.

6.4 Japan: Japan’s ESG model is built on the cultural philosophy of “Sanpo Yoshi” or  good for the seller, good for the buyer, and good for society. The Japan Exchange Group (JPX) makes it obligatory for listed companies to disclose ESG data aligned with the TCFD framework. Moreover, the Government Pension Investment Fund (GPIF) the world’s largest, integrates ESG criteria into all investment decisions. This approach ties ESG to corporate resilience and long term value creation, rather than short term compliance. Indian firms such as Tata Group and Infosys have drawn inspiration from the Japanese model, embedding sustainability into their operational ethos instead of treating it as a post compliance requirement.

7. CHALLENGES AND LIMITATIONS IN IMPLEMENTING ESG DISCLOSURES IN INDIA

While ESG disclosure frameworks have, for sure, rewrought corporate accountability in India, the journey toward nifty implementation still remains thorny. The evolution from voluntary sustainability practices to structured compliance involves challenges of data integrity, regulatory consistency, sectoral disparity, and institutional capacity. Despite progressive policy interventions, India’s ESG landscape faces several bound and determined hurdles that might threaten to deliquesce the reorientational potential of sustainability reporting. A few of them have been discussed below:

7.1 Absence of Standardized ESG Metrics:

Included in the most notable challenges in India’s ESG ecosystem is the lack of standardization in reporting metrics. Although SEBI’s Business Responsibility and Sustainability Report (BRSR) provides a common disclosure template, companies often interpret qualitative indicators differently. By way of illustration, parameters such as “energy efficiency” or “gender inclusivity” are disclosed using varied units and methodologies, thereby making cross company comparison difficult.

Among other things, smaller firms often rely on self assessment without independent verification, which calls into question the credibility of reported data. Unlike the European Union’s Corporate Sustainability Reporting Directive (CSRD) or the U.S. SEC’s proposed Climate Disclosure Rules, India’s ESG framework currently lacks uniform performance benchmarks and obligatory assurance standards for all listed entities. This creates inconsistency across sectors and challenges the reliability of investor decisions.

7.2 Data Quality, Verification, and Greenwashing Risks:

A related concern is the accuracy and authenticity of ESG data. Many Indian companies are bereft of reliable internal systems to gather and monitor non financial information. This leads to data gaps, incomplete disclosures, and, in some cases, greenwashing, which is, in short, the practice of overstating sustainability performance to appear acquiescent. Similarly, ESG ratings agencies, in many instances, depend on data provided by the company, which in turn, gives rise to rating discrepancies among different evaluators. SEBI’s move to introduce BRSR Core, which requires external assurance of key ESG metrics, is a step toward mitigating this issue. However, widespread implementation will require developing a cadre of qualified sustainability auditors and clearer assurance protocols.

7.3 High Compliance Costs for Smaller Enterprises:

Another major obstacle is the financial and administrative burden of ESG reporting, especially for Small and Medium Enterprises (SMEs). Implementing ESG systems, such as data tracking, sustainability audits, or carbon accounting, demands significant investment in technology, personnel, and training. While large corporates like Tata Steel, Infosys, and Wipro possess the resources to integrate ESG frameworks seamlessly, mid sized companies often find compliance monetarily burdensome. The absence of differentiated compliance thresholds for SMEs further adds insult to injury, potentially discouraging broader participation in the sustainability movement. Experts have recommended a phased implementation model, where smaller firms adopt simplified disclosure formats aligned with their scale and operations. This could help democratise ESG adoption across the corporate spectrum.

7.4 Fragmented Regulatory Oversight:

India’s ESG regulations are currently spread across multiple authorities viz Ministry of Corporate Affairs (MCA), Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Ministry of Environment, Forest and Climate Change (MoEFCC), and NITI Aayog. Each institution focuses on different aspects of sustainability. This fragmented regulatory landscape as often as not results in superimposing mandates and inconsistent enforcement.

As it is commonly seen, while SEBI focuses on listed entities, the MCA oversees CSR compliance for both listed and unlisted companies. Similarly, RBI and IRDAI regulate financial institutions separately without a unified sustainability standard. The absence of a centralised ESG authority or coordination mechanism hinders coherence and leads to interpretational ambiguities. A unified National Sustainability Reporting Framework, integrating sectoral regulations, would significantly streamline ESG governance and compliance.

7.5 Limited Awareness and Expertise: Effective ESG integration requires cavernous understanding of sustainability principles, environmental science, and social governance. Such areas mostly remain underdeveloped in many Indian corporates. Board members, compliance officers, and auditors often do not have niche training in ESG risk assessment, carbon accounting, or human rights due diligence. This skill gap impedes effective implementation of BRSR guidelines and leads to superficial compliance. According to a 2024 survey by Deloitte India, over 70% of companies acknowledged that their boards do not possess sufficient ESG literacy to evaluate sustainability strategies effectively.

7.6 Inconsistent Investor Interpretation: While ESG investing is gaining momentum, the lack of uniform ESG rating methodologies complicates investor decision-making. Different rating agencies such as MSCI ESG Ratings, Refinitiv, and CRISIL often assign divergent ESG scores to the same company due to varying criteria and weightages. This inconsistency confuses investors and diminishes the credibility of ESG as a reliable measure of corporate sustainability. Moreover, the absence of mandatory disclosure for unlisted companies restricts the ability of investors to evaluate the entire value chain, particularly in sectors reliant on outsourced production or raw materials.

7.7 Legal Ambiguities and Enforcement Challenges: Although SEBI and the Companies Act have incorporated ESG reporting requirements, enforcement mechanisms remain relatively weak. Non-compliance with BRSR norms attracts limited penalties, and ESG data falsification lacks a clear legal definition or remedy. Judicial precedent has historically focused on environmental degradation and labour rights, but corporate ESG accountability is yet to be comprehensively adjudicated in Indian courts. Furthermore, absence of uniform grievance mechanisms for stakeholders affected by ESG violations limits redressal options. Future reforms could address this gap by creating a specialised sustainability tribunal or extending the jurisdiction of National Company Law Tribunal (NCLT) to cover ESG-related disputes and penalties.

8. WAY FORWARD

The rapid institutionalization of Environmental, Social, and Governance (ESG) disclosures in India signals a crucial transition from voluntary sustainability initiatives to a mandatory governance paradigm. However, to ensure that ESG integration genuinely transforms corporate structures and not just disclosure checklists, several forward looking measures must be adopted.

8.1 Development of Unified ESG Standards: While SEBI’s Business Responsibility and Sustainability Report (BRSR) provides a strong regulatory foundation, India presently lacks a uniform sustainability disclosure framework equivalent to the European Sustainability Reporting Standards (ESRS) or the IFRS Sustainability Standards (S1 & S2). Establishing an Indian ESG Reporting Standard (IERS), harmonized with global benchmarks, would bring data comparability, transparency, and investor confidence to the Indian market. Such a standard could be jointly developed by the Ministry of Corporate Affairs (MCA), SEBI, and the Institute of Chartered Accountants of India (ICAI), incorporating both environmental metrics (emission data, energy usage) and social parameters (gender ratio, employee welfare, community impact).

8.2 Strengthening Board-Level Governance: Corporate boards must integrate ESG oversight into their decision-making structures. The creation of dedicated ESG committees at board level, similar to audit or remuneration committees, can ensure ongoing accountability. These committees should monitor progress on net-zero targets, ethical supply chains, and diversity goals while ensuring compliance with SEBI’s LODR Regulations. Moreover, integrating sustainability-linked Key Performance Indicators (KPIs) into executive compensation as practiced in the UK and Japan can align corporate leadership incentives with long-term environmental and social objectives.

8.3 Role of Independent Assurance and Legal Oversight: Independent ESG assurance must become a statutory requirement rather than a voluntary practice. Third-party auditors should verify ESG disclosures in line with SEBI’s BRSR Core Assurance Guidelines (2023). Simultaneously, the legal fraternity must be empowered to advise, monitor, and litigate cases of greenwashing or non-compliance, ensuring that sustainability claims are backed by verifiable performance data. Legal professionals, working alongside policymakers, can also develop ESG-specific dispute resolution mechanisms, possibly through the National Company Law Tribunal (NCLT) or specialized ESG Compliance Panels under SEBI.

8.4 Fostering ESG Capacity Building: The success of ESG integration depends heavily on corporate literacy. The government, academic institutions, and industry bodies such as CII, FICCI, and ASSOCHAM should jointly conduct capacity-building programs to train executives, compliance officers, and legal teams on ESG best practices. Introducing ESG certifications and academic modules within business and law curricula will cultivate a generation of professionals fluent in sustainability governance.

8.5 Public-Private Collaboration and Global Alignment: India’s ESG framework must evolve in coordination with international initiatives like the UN Global Compact and the OECD Guidelines for Multinational Enterprises. Public-private partnerships can accelerate technology adoption in renewable energy, waste management, and green financing. The creation of ESG innovation funds and sustainability-linked bonds will further align corporate goals with India’s commitment to achieving Net Zero by 2070, as pledged at COP26.

9. CONCLUSION

The growing prominence of ESG disclosures in India reflects an undeniable shift in the philosophy of corporate governance. It is slowly and steadily evolving from shareholder capitalism to stakeholder capitalism. Once regarded as a peripheral exercise in corporate social responsibility, ESG reporting has now evolved into a strategic, regulatory, and ethical imperative influencing every facet of business operation.

Indian companies are gradually recognizing that sustainability and profitability are not opposing goals but complementary pillars of long term resilience. Through SEBI’s BRSR framework, judicial activism, and market-driven sustainability investments, India has begun embedding transparency, inclusivity, and ethical governance within its corporate DNA.

Yet, challenges are still there in the form of inconsistent reporting formats, limited assurance mechanisms, and inadequate ESG literacy continue to hinder uniform compliance. The path forward lies in the harmonization of global and domestic ESG standards, board-level accountability, and independent verification of sustainability data. The legal fraternity, investors, and regulators must act collectively to transform ESG from a regulatory obligation into a core business philosophy.