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Environmental, Social, and Governance (ESG) considerations are no longer a peripheral concern for businesses—they are the bedrock of modern corporate governance and sustainable growth. ESG law in India is an evolving landscape, interwoven with various legal frameworks, guidelines, and market-driven practices. As India aligns itself with global sustainability goals, ESG regulations are becoming a critical driver of corporate accountability, stakeholder engagement, and value creation.
The Regulatory Fabric of ESG in India
Unlike a single overarching statute, ESG regulations in India are distributed across multiple legislative acts and regulatory frameworks, reflecting the multidimensional nature of sustainability. Key legislation includes:
Factories Act, 1948: Governs workplace safety and welfare.
Environment Protection Act, 1986: Lays down environmental standards and pollution controls.
Air and Water Acts: Address pollution control mechanisms.
Companies Act, 2013: Mandates Corporate Social Responsibility (CSR) activities for companies meeting specific financial thresholds and gender diversity on boards.
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations): Requires listed entities to disclose ESG-related practices, including Business Responsibility and Sustainability Reporting (BRSR).
This regulatory diversity ensures that ESG principles touch every facet of business operations, from environmental stewardship to ethical governance.
BRSR and the Nine Principles of Responsible Business
The transition from the Business Responsibility Report (BRR) to the Business Responsibility and Sustainability Report (BRSR) in 2021 marked a significant leap in ESG reporting. Mandated for the top 1,000 listed companies by market capitalization, BRSR aligns with the nine principles of the National Guidelines on Responsible Business Conduct (NGRBC). These principles address:
⦁ Ethics, transparency, and accountability.
⦁ Sustainability and safe workplace practices.
⦁ Employee well-being.
⦁ Stakeholder engagement.
⦁ Human rights.
⦁ Environmental stewardship.
⦁ Social and inclusive development.
⦁ Consumer welfare.
⦁ Policy advocacy for public good.
From FY 2023-24, SEBI’s introduction of BRSR Core demands reasonable assurance of disclosures, elevating the standard of accountability for India’s top 150 listed entities. By FY 2024-25, these disclosures will extend to value chain partners of the top 250 entities, further embedding ESG principles across corporate ecosystems.
The Social and Governance Dimensions of ESG
The Companies Act, 2013, underpins the social and governance aspects of ESG. It requires specific classes of companies to undertake CSR activities, promoting education, gender equality, healthcare, and environmental sustainability. Section 149 mandates the inclusion of at least one female director, fostering gender diversity in leadership.
Moreover, SEBI’s 2023 regulations address governance transparency through disclosure frameworks such as BRSR Core. These measures safeguard against risks like greenwashing and bolster investor confidence by ensuring that companies substantiate their ESG claims with credible data.
Global Context and India’s Position
Indian ESG regulations are also informed by global standards, such as:
United Nations Sustainable Development Goals (SDGs): A blueprint for achieving a sustainable future.
UN Guiding Principles on Business and Human Rights: Promoting corporate accountability for human rights impacts.
Global frameworks like the US Foreign Corrupt Practices Act (1997) and UK Bribery Act (2010): Addressing anti-corruption and governance challenges.
These alignments reflect India’s ambition to harmonize domestic practices with international benchmarks, making Indian companies attractive to global investors.
Challenges and Opportunities
While India’s ESG framework is robust, it faces challenges:
Fragmentation of Laws: ESG regulations are dispersed across various statutes, making compliance complex.
Awareness Gap: Many businesses, particularly SMEs, lack awareness about ESG standards.
Data Reliability: Ensuring the accuracy of ESG data remains a concern.
Despite these challenges, ESG compliance presents enormous opportunities. Companies adopting sustainable practices witness enhanced brand reputation, operational efficiencies, and access to ESG-focused investment pools. SEBI’s proactive measures are also encouraging companies to innovate and integrate ESG into their core strategies.
The Road Ahead
The future of ESG law in India hinges on consolidation and expansion. Potential steps include:
Unified Legislation: Creating a single ESG-specific law to streamline compliance.
Capacity Building: Conducting awareness programs to educate businesses about ESG requirements.
Technological Integration: Leveraging technology for accurate ESG reporting and monitoring.
Conclusion
ESG law represents a paradigm shift in how businesses operate and are evaluated. It is not merely a regulatory requirement but a pathway to sustainable growth and resilience. As India’s corporate sector embraces this transformative framework, the synergy between regulatory compliance and strategic sustainability will drive long-term value for all stakeholders. With its progressive ESG landscape, India is poised to set a benchmark for sustainable corporate practices globally.
Sources Referred-
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