This article is written by Shobhana Rathore 4th year B.A LL.B , Greater Noida College of Law during her internship with Le Droit India.
Abstract
Environmental, Social, and Governance (ESG) compliance has emerged as a critical framework for sustainable corporate governance in India. This article explores the evolving legal landscape mandating ESG adherence, highlighting statutory obligations, regulatory frameworks, judicial interpretations, and practical implications for Indian corporations. It underscores how ESG compliance is transitioning from voluntary best practices to enforceable legal mandates, reflecting India’s commitment to sustainable development and responsible business conduct.
Keywords
– ESG Compliance India
– Corporate Social Responsibility (CSR)
– SEBI BRSR Regulations
– Environmental Laws India
– Corporate Governance India
– Labour Laws and ESG
Introduction
The concept of Environmental, Social, and Governance (ESG) compliance has gained significant traction globally as investors, regulators, and stakeholders demand greater accountability from corporations on sustainability and ethical governance. In India, this trend is mirrored by a robust legal framework that increasingly integrates ESG principles into corporate obligations. This article delves into the rise of ESG compliance in India, focusing
on the legal mandates that govern corporate behavior, the regulatory environment, judicial perspectives, and the practical steps corporations must undertake to align with ESG norms.
1. Understanding ESG and Its Relevance in India
ESG refers to a set of criteria that measure a company’s ethical impact and sustainability practices across three pillars:
– Environmental: Management of natural resources, pollution control, carbon footprint reduction, and climate change mitigation.
– Social: Labour practices, community engagement, human rights, and social welfare initiatives.
– Governance: Corporate governance structures, transparency, board diversity, and ethical business conduct.
India’s rapid economic growth, environmental challenges, and social disparities have made ESG compliance not only a global expectation but a domestic necessity. Indian regulators and policymakers have responded by embedding ESG principles into statutory and regulatory frameworks.
2. Legal Framework Governing ESG Compliance in India
2.1 Companies Act, 2013 – Corporate Social Responsibility (CSR)
Section 135 of the Companies Act, 2013, is a pioneering statutory provision mandating CSR spending for companies meeting certain financial thresholds (net worth, turnover, or net profit). Corporations are required to allocate at least 2% of their average net profits over the preceding three years towards CSR activities, which primarily address social welfare but also intersect with environmental sustainability. This legal obligation institutionalizes the ‘Social’ aspect of ESG and compels companies to contribute to societal development.
2.2 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
The Securities and Exchange Board of India (SEBI) has been instrumental in advancing ESG compliance through regulatory mandates. From the financial year 2022-23, the top 1,000 listed companies by market capitalization are required to submit Business Responsibility and Sustainability Reports (BRSR). This comprehensive disclosure framework covers environmental impact, social responsibility, and governance practices, enhancing transparency and accountability. The BRSR replaces the earlier Business Responsibility Reports (BRR), reflecting a more detailed and standardized approach to ESG reporting.
2.3 Environmental Laws
Corporations in India must comply with a suite of environmental statutes, including: – The Environment Protection Act, 1986
– The Air (Prevention and Control of Pollution) Act, 1981
– The Water (Prevention and Control of Pollution) Act, 1974
– Hazardous Waste (Management and Handling) Rules
These laws impose obligations on companies to minimize pollution, manage waste responsibly, and adopt sustainable environmental practices. Increasingly, courts and regulators expect proactive environmental stewardship as part of corporate responsibility.
2.4 Labour and Social Welfare Laws
The social dimension of ESG is reinforced by compliance with labour laws such as: – The Industrial Disputes Act, 1947
– The Payment of Gratuity Act, 1972
– The recently consolidated Labour Codes (e.g., Code on Wages, Occupational Safety, Health and Working Conditions Code)
These laws ensure protection of workers’ rights, fair remuneration, safe working environments, and social security benefits, aligning corporate practices with social sustainability goals.
2.5 Governance Standards
Good governance is mandated under the Companies Act through provisions related to: – Board composition and the appointment of independent directors
– Audit committees and risk management frameworks
– Transparency in financial disclosures and related party transactions
SEBI’s regulations further emphasize governance disclosures, ethical conduct, and accountability mechanisms, which are critical to investor confidence and corporate integrity.
3. Judicial Interpretations and ESG Enforcement in India
Indian judiciary has played a proactive role in reinforcing ESG principles. The Supreme Court and various High Courts have delivered landmark judgments emphasizing corporate accountability towards environmental protection and social welfare. For instance, the courts have held companies liable for environmental degradation and mandated remediation measures. Judicial pronouncements have also underscored the importance of ethical governance and penalized malpractices, thereby strengthening the ESG compliance regime.
4. Practical Implications for Corporations
4.1 Integration of ESG into Corporate Strategy
Corporations must embed ESG considerations into their core business strategies rather than treating them as peripheral compliance requirements. This involves setting measurable ESG goals, risk assessments, and aligning operations with sustainability objectives.
4.2 Establishment of ESG Committees
Many companies are forming dedicated ESG committees or integrating ESG responsibilities within existing governance structures such as CSR committees or risk management committees. This institutionalizes accountability and oversight.
4.3 Transparent ESG Reporting
Regular and transparent ESG disclosures, as mandated by SEBI’s BRSR framework, are essential to maintain investor trust and comply with regulatory expectations. Companies must adopt robust data collection and reporting mechanisms.
4.4 Risk of Non-Compliance
Failure to comply with ESG obligations can result in regulatory penalties, legal actions, reputational damage, and loss of investor confidence. Proactive compliance mitigates these risks and enhances long-term sustainability.
5. Illustration:
Case Study of ESG Compliance in an Indian Corporation
Consider a leading Indian manufacturing company that has integrated ESG compliance into its operations:
– Environmental: The company has invested in renewable energy sources, reduced water consumption by 30%, and implemented waste recycling programs.
– Social: It runs community development programs focusing on education and healthcare, ensuring compliance with labour laws and promoting employee welfare.
– Governance: The board includes independent directors with ESG expertise, and the company publishes detailed BRSR reports annually, demonstrating transparency and accountability.
This holistic approach has improved the company’s market reputation, attracted ESG focused investors, and ensured regulatory compliance.
Tata Group
The Tata Group has been at the forefront of CSR initiatives in India, focusing on education, health care, and environmental sustainability. Their commitment to ESG compliance has enhanced their brand reputation and stakeholder trust.
Infosys
Infosys has integrated sustainability into its business model by adopting renewable energy sources and promoting diversity and inclusion within its workforce. Their transparent reporting on ESG metrics has attracted global investors.
The Future of ESG Compliance in India
Evolving Regulations
As the demand for transparency increases, we can expect further regulatory developments aimed at enhancing ESG compliance among Indian corporations.
Increased Investor Interest
With more investors prioritizing sustainability, companies that fail to adopt robust ESG practices may find it challenging to secure funding.
Technological Innovations
Advancements in technology will play a crucial role in helping companies track and report their ESG performance effectively.
Conclusion
The rise of ESG compliance in India marks a significant shift towards sustainable and responsible corporate governance. Legal obligations under the Companies Act, SEBI regulations, environmental and labour laws, coupled with judicial enforcement, have transformed ESG from a voluntary aspiration into a binding mandate. Indian corporations must proactively embrace ESG principles to meet regulatory requirements, enhance stakeholder trust, and contribute to the nation’s sustainable development goals. As global and domestic pressures intensify, ESG compliance will remain a cornerstone of corporate strategy and legal accountability in India.
References
1. Ministry of Corporate Affairs, Government of India. (2014). Companies Act 2013. 2. Securities and Exchange Board of India (SEBI). (2021). Business Responsibility and Sustainability Report (BRSR).
3. KPMG. (2020). The Road Ahead: Sustainability Reporting in India. 4. Tata Group. (2022). Sustainability Report.
5. Infosys. (2021). Annual Report on Corporate Social Responsibility. 6. World Economic Forum. (2021). The Global Risks Report 2021.
7. International Finance Corporation (IFC). (2020). The Role of Environmental, Social, and Governance Factors in Investment Decisions.
8. PwC India. (2020). Corporate Social Responsibility: A Study on Indian Companies.
