CORPORATE GOVERNANCE AND ESG COMPLIANCE IN INDIAN COMPANIES

Introduction

‘Corporate’ means a set of large companies, and ‘governance’ means the rules and regulations, processes and behaviours that guide control and manage the organisation. It involves making decisions and setting policies, and the policies are carried out. It ensures that everything is done correctly, ethically and in line with the law. Corporate governance means the rules and regulations by which the enterprises are governed and controlled. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is utilised.

ESG (Environmental, Social and Governance) is an approach or an analysis framework to help measure and quantify to which an organisation is operating in a sustainable manner. In a simple manner, it helps the company to understand how to manage opportunities and risks associated with ESG-related aspects. It is an approach to evaluating the way in which a corporation works to achieve a certain set of environmental goals, social goals, and corporate goals. ESG investing refers to a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments. It became a mandatory framework with SEBI BRSR (Business Responsibility and Sustainability Report (BRSR)) in 2021, making it compulsory for 1000 top listed entities starting from the Financial Year (FY) 2022-23, replacing voluntary order guidelines. Corporate governance and ESG compliance have become critical pillars of modern business operations in India.

Corporate Governance Framework in India

The Indian statutory framework has, by and large, been in consonance with the international best practice of corporate governance.  The corporate governance mechanism for companies in India is enumerated in my following enactments, regulating guidelines and listing agreements:

1. The Companies Act, 2013 – It contains provisions relating to board constitution, board meetings, board process, independent direction, general meetings, audit committee, related party transactions, etc. The MCA (Ministry of Corporate Affairs) is responsible for regulating corporate affairs through the administration of the Companies Act. This act has formed the cornerstone of corporate governance regulations in India. This law is applicable to both listed and unlisted companies.

The New Amendment 2018 covers corporate governance through its following provisions:

• New companies introduce significant changes to the composition of the boards of direction.
• Every company is required to appoint 1 resident director on its board
• Listed companies & certain public companies shall be required to appoint at least one-woman director on their board.       

2. SEBI (Security and Exchange Board of India) – SEBI is the regulating authority having jurisdiction over listed companies which issues regulations, rules & guidelines to companies to ensure protection of investors. Under Clause 49 of the SEBI Guidelines on Corporate Governance, the company agrees to comply with the following provisions.

       Board of Directors–

• Composition of Board

• The BOD of the Company shall have an optimum combination of executive & non-executive directors, with not less than 50% of the BOD comprising of non-executive directors.
• Where the chairman of the board is a non-executive director, at least 1/3rd of the board should comprise independent directors.

Non-Executive Director’s Compensation & Disclosures

• All fee compensation, if any, paid to non-executive directors, including independent directors, shall be fixed by the BOD and shall require previous approval of shareholders in a general meeting.

Other Provisions as to Board and Committees

• The board shall meet at least 4 times a year, with a maximum time gap of 4 months between any 2 meetings.
• A director shall not be a member of more than 5 committees or act as chairman in which he is a director.
• The Board shall periodically review compliance reports of all laws applicable to the company, prepared by the company, as well as steps taken by the company to rectify instances of non-compliance.

3. Banking Regulation Act 1949 – The banking regulation is being regulated by RBI. The regulatory body oversees governance standards for banks and financial institutions.
4. Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI) – ICAI is an autonomous body, which issues accounting standards providing guidelines for disclosure of financial information. Section 129 of the New Companies Act, inter alia, provides that the financial statements shall give a true and fair view of the state of affairs of the company or companies and comply with the accounting standard notified u/s 133 of the New Companies Act.
5. Institute of Company Secretaries of India (ICSI) – provides professional guidance and sets corporate secretarial practices. It is responsible for ensuring regulatory compliance.

 ESG Compliance Framework in India

1. SEBI BRSR (Business Responsibility and Sustainability Reporting)

The SEBI, with the Listing Obligations and Disclosure Requirements Regulations 2015, established the BRSR as the primary ESG reporting mechanism for the listed companies. The BRSR replaced the BRR (Business Responsibility Reporting) and brought in stricter and more comprehensive reporting requirements. It mandates the top 1000 listed companies (by market capitalisation) to report on key ESG parameters. The focus areas are Environmental Impact, Social Responsibility and Governance Standards. It became mandatory from the financial year 2022-23.

2. Environmental Protection Act, 1986

It is one of the primary regulations that helps us save environmental sustainability in the country by ensuring environmental conservation. This Act sets standards for the emission and discharge of pollutants, ensuring that businesses adhere to environmental standards. These acts are particularly like those of cement companies and other companies that have a direct environmental impact.

3. COMPANIES ACT, 2013

Section 135 of the Companies Act, 2013, mandates a 2% CSR (Corporate Social Responsibility) of their average net profits of the preceding three financial years on CSR activities. India is one of the first countries to mandate CSR spending, and the criteria for CSR funding have been given as follows:

1. Have a net worth of Rs500 crore or more
2. Have a turnover of Rs 1000 Croce or more
3. Have a net profit of Rs 5 crore or more during a financial year

As the aim is to contribute positively to the society by addressing critical issues like education, healthcare, environmental sustainability and poverty alleviation.

4. MINISTRY OF CORPORATE AFFAIRS (MCA)

The MCA is responsible for corporate governance practices and CSR activities in India. The MCA ensures that businesses align with national priorities and comply with ESG regulations. The MCA issued the National Guidelines on Responsible Business Conduct (NGBRC) in 2019, which serve as the foundation for the BRSR Framework.

5. Articles 21 and 48-A of the constitution guarantee the right to a clean and sustainable environment. As 21 talks about the right to life and personal liberty. The right to life is only possible if we have a good and clean climate all around. Environmental protection is a fundamental duty as well as a fundamental right of every citizen provided in the constitution.

Landmark case laws

1. Satyam Computer Services Ltd. Fraud Case (2009)

This case involved a big corporate fraud. The founder of Satyam admitted that he showed fake profits and assets in company accounts for many years. The chairman of Satyam (a big IT company) admitted to faking the company’s accounts for years. He showed fake profits of ₹7,000+ crores that didn’t exist. Investors and shareholders were cheated. The case showed the importance of honest accounting, corporate governance, and strict audits. The government stepped in to save the company.

2. Tata Sons v. Cyrus Investments (2020)

This case was about the removal of Cyrus Mistry as Chairman of Tata Sons. Cyrus Mistry’s family companies challenged his removal, saying it was unfair. The Supreme Court held that Tata Sons acted lawfully and that company management decisions should not be interfered with unless clearly illegal. 

        3.SEBI v. Sahara India (2012)

Sahara collected ₹24,000 crores from millions of small investors illegally without following SEBI rules. Supreme Court ordered Sahara to return all the money. Even sent Sahara’s chief to jail. Protected small investors. This case strengthened SEBI’s powers and protected small investors from fraud.

4. M.C. Mehta v. Union of India – Oleum Gas Leak (1987)

Poisonous gas (oleum) leaked from a factory in Delhi, harming people nearby. Why it matters: Created “absolute liability” rule – if a company does dangerous work and causes harm, they must pay compensation, no excuses allowed. 

Challenges, Gaps, and the Way Forward

As several companies only think about the profit earning and do not think about the society and harm the environment. As the framework risk of greenwashing is that companies may exaggerate sustainability claims to meet investor expectations, leading to reputational and legal risks. The framework maintained is creating complexity for corporations. Smaller firms find ESG compliance expensive due to technology, audits and reporting requirements. As the news of Adani by Hindenburg was an indication of a malpractice. These kinds of malpractices are challenging the society to grow.

 Solutions are simple. The stakeholders are the important part of the company. The company must follow SEBI’s BSBR rules in India. They should use software to track and report data. They should teach staff about ESG and create awareness about that. They can make ESG a part of business plans.

Conclusion

Corporate governance and ESG compliance help Indian companies grow responsibly and ethically. Strong laws like the Companies Act and SEBI BRSR ensure transparency, accountability, and sustainability. By following these rules, companies can protect investors, care for society and the environment, and build long-term trust and success. Corporate governance and ESG compliance are essential for sustainable business operations in India. Despite strong frameworks like the Companies Act 2013 and SEBI BRSR guidelines, challenges remain including greenwashing and high costs. Companies must prioritize transparency and ethical practices. By integrating ESG into strategies and ensuring compliance, Indian companies can build investor trust and contribute positively to society’s development.

REFERENCSE(S):

Acts and Regulations

1. The Companies Act, 2013. Ministry of Corporate Affairs, Government of India.
2. Banking Regulation Act, 1949. Reserve Bank of India.
3. The Environment (Protection) Act, 1986. Ministry of Environment, Forest and Climate Change, Government of India.
4. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
5. Constitution of India, 1950. Articles 21 and 48-A.

Web Links

1. Ministry of Corporate Affairs – https://www.mca.gov.in/ (accessed on 18th December,2025)
2. Securities and Exchange Board of India – https://www.sebi.gov.in/ (accessed on 18th December,2025)
3. Institute of Company Secretaries of India – https://www.icsi.edu/ (accessed on 18th December,2025)