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Evolution of ESG Regime in India: Challenges and way forward


The term ESG has come to be widely discussed and debated in the past decade. While it has come to be an important term for those investing in the capital market in India and worldwide, it remains to be an enigma for many. ESG stands for Environmental, Social, and Governance. Broadly speaking in addition to corporate governance (which stands for “G” in ESG), it includes other issues such as the corporation’s response to climate change, internal policies and code of conduct, treatment of labor force, training and assistance provided to staff and most importantly, the corporate culture and the working environment.

In India, these issues were mostly addressed so far in terms of Corporate Social Responsibility (CSR). CSR became a mandatory part of the Indian Corporate setup with the introduction of the Companies Act, 2013 under Section 135 which imposed an obligation upon corporations to allocate a certain part of their resources towards projects affecting the social and environmental fabric of the company. Compared to CSR, ESG is a relatively new concept that has invited much attention in the past 5 years. However, it differs from CSR in the term that it allows a conscious investor to make an informed decision considering the performance of a corporation on Environmental, Social, and Governance factors. Both CSR and ESG ultimately will help India achieve its Sustainable Development Goals (SDG).

ESG Regulatory Regime in India

The primary problem with ESG implementation in India was the lack of a codified law in this regard. While there is no one legislation addressing all ESG-related matters, various pieces of legislation such as the Environment Protection Act, of 1986, Factories Act, of 1948, and Prevention of Money Laundering Act, of 2002 have been regulating the Environmental, Social, and governance aspects of the corporations.

Additionally, SEBI also amended SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015[i] proposing the submission of a report on ESG parameters set by the Business Responsibility and Sustainability Reporting (BRSR) framework for the top 1000 listed companies in India from FY 2022-23.

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esgBRSR aims to assess the performance of these top 1000 companies on nine principles of the “National Guideline on Responsible Business Conduct”[ii]. The principle-wise performance disclosure categorizes the information sought from the companies into essential indicators reporting which is mandatory, and Leadership Indicators reporting which is voluntary.

The disclosures demanded by BRSR will allow the investors to make an informed choice relating to their investment. At the same time, it will also encourage the companies to foster non-financial benefits such as opting for sustainable practices, achieving a work-life balance among the employees, payment of minimum wages to the workers, training the employees on human rights issues, etc. If a company succeeds on these parameters, it will create a long-time, reliable relationship with its stakeholders and it will also allow them to attract conscious investors in the market.

Among various others, some of the key disclosure sought by BRSR are:

  1. An overview of the company’s ESG risks assessment and the approach adopted and steps taken to mitigate the same specifying the financial implications involved in doing so.
  2. Goals set by the company for maintaining sustainability and performance in these regards.
  3. Environment-related disclosures such as GHG emissions, total waste generation, and disposal, and efforts towards the protection of biodiversity.
  4. Social disclosures covering areas such as gender and social diversity among the employees, median wages, disclosures on Social Impact Assessment, rehabilitation, and fulfilment of Corporate social responsibility.

Overall, BRSR is carefully crafted to align the performance of companies with India’s resolutions to achieve the United Nation’s Sustainable Development Goals[iii] and targets set by the Paris Agreement[iv]. It is expected that the process will be further fuelled by the extension of disclosure obligations to all listed as well as unlisted companies having a considerable impact.

Challenges to the Indian ESG Framework

As already stated, there is no consolidated piece of legislation addressing the ESG issued in India. The existing pieces of legislation supplementing the same, especially those about the environment have not been updated for a while and therefore, they are incompetent to address the modern challenges. For example, The Water (Prevention and Control of Pollution) Act, 1974 prescribes punishment for three months along with a fine of Rs. 10,000 for the failure to furnish information to the Central or State Pollution Control Board. Similarly, various other legislations such as the Prevention of Money Laundering Act, of 2002 suffer from various loopholes[v] and there have been misused[vi] for the notorious purpose which raises a question on the efficiency of the legislation.

One of the problems faced worldwide is the authenticity of the ESG data collected. In most the countries including India, certain disclosures are not mandatory, however, they form an important part of the ESG regime. For example, the following disclosures required by BRSR are voluntary:

1.    Information on Environmental Impact Assessment taken in the respective financial year,

2.    Company’s specific contribution to India’s Nationally determined contribution[vii],

3.    Implementation of policies to achieve work-life balance among the employees,

4.    Corrective actions taken by the companies for anti-competitive conduct.

There is also the issue of the reliability on the data disclosed by the corporates as there exists no scheme to ascertain whether the data furnished is true or fabricated. With corporates realizing the rise of ESG disclosures, greenwashing has become more prevalent than ever. SEBI defines greenwashing as “making false, misleading, unsubstantiated, or otherwise incomplete claims about the sustainability of a product, service, or business operation.” Greenwashing is especially prevalent in the fast-fashion industry. H&M which is one of the most popular clothing brands in India has repeatedly asserted that its products are eco-friendly and sustainable but has been accused of adopting mass production practices causing increased waste generation and an upsurge in carbon footprint[viii]. Volkswagen has been found responsible for manipulating technology to breach carbon emission ratings.

Amidst the ongoing sustainability revolution in India[ix] and the introduction of ESG, ESG rating providers of ERPs have acquired a significant role to play. ERPs are the independent agencies that asses the entities and provide ratings enabling the investor to adjudge the corporation’s commitment towards sustainability. ERPs are largely unregulated in India. However, SEBI has approved a regulatory framework for the same by amending the existing CRA Regulations[x]. In light of this development, it is important to analyze the success of countries like the USA which are a step ahead of India in this regard and have had a more or less bitter experience with ERPs. The USA has four dominant ESG rating companies:MSCI ESG, Sustainalytics, RepRisk, and ISS[xi].These companies rate more than 100,000 companies across various sectors. However, these companies differ greatly in quality, quantity, and factors taken into consideration while rating which has nothing but created reliability chaos in the market and has failed to achieve the initial objective of an ERP which is to allow investors to assess the performance of a corporation on environmental, social and governance parameters[xii].With India set to welcome the ERPs for ESG assessment, it is likely to undergo the same experience unless SEBI comes up with a better and more robust mechanism for regulation of ERPs.


ESG is relatively a new phenomenon worldwide, however, India can definitely take lessons from the shortcomings faced by the European Union and United States of America which are currently the forerunners in the arena. While SEBI is attempting to take a balanced approach, expecting a perfect outcome would be an overestimation as India as a developing country is bound to face unique challenges which can only be overcome by hit and trial. Nevertheless, there should be an effort to adopt the best practices worldwide.

Among various actions required, one of the most immediate needs of the time is a compiled code regulating ESG instead of multiple legislative snippets. India already has had bitter experience with various Insolvency legislations which failed to resolve the issues ultimately paving the way to a comprehensive Insolvency and Bankruptcy Code of 2016. Also, there is a need to revisit the environmental laws as far as the penalty prescription is concerned as until and unless an active deterrence is created, the polluter pays principle is nothing but a license to pollute and pay later.

With ESG gaining dynamism, the role of independent directors will become evermore important as these are the watchdogs inside the company that can ensure that authentic information is disclosed by the companies. In this regard, there is a need to revise their removal procedure, which at present is as simple as earning a simple majority along with minimal remuneration paid other challenges faced.

For investment purposes, ESG funds are rapidly spreading in the mutual fund industry and are globally one of the fastest growing. It remains to be seen how India will stand on the jumbled parameters of E, S, and G.

Author: Shiwangi Singh, in case of any queries please contact/write back to us via email to [email protected] or at IIPRD. 












[xi]Timothy M. Doyle, Ratings that Don’t Rate: The Subjective World of ESG Ratings Agencies, Harvard Law School Forum on Corporate Governance, (August 7, 2018).

[xii]Javier El-Hage, Fixing ESG: Are Mandatory ESG Disclosures the Solution to Misleading ESG Ratings?, 26 FORDHAM J. CORP. & FIN. L. 359 (2021).

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