From Disclosure to Duty: The Legal Rise of ESG Compliance in India

Abstract

In today’s world companies are not merely judged on the basis of how much profit it makes but also by how they care for the environment, treat people, and ensure transparency in their functioning. This is called environmental, social, and governance (ESG) compliance that the company must follow. Companies adhering to these principle reflects credibility and are seen as more trustworthy by the investors. The regulatory framework is rapidly changing to include ESG principle into the core function of companies, especially after SEBI introduced the Business Responsibility and Sustainability Report (BRSR) that has made obligatory for the top listed companies to report about their ESG activities.

This article explains what ESG compliance means and how it is important for the Indian companies, what laws and rules ESG makes mandatory for the companies to apply, and how business are following and responding to them. This has marked a significant transition from the earlier voluntary CSR approach under the companies act 2013 to a structured and compliance oriented ESG reporting. The article also provides insights surrounding the legal framework of ESG in India, including SEBI’s and BRSR mandate, and recent policy developments. It tends to explain major challenges that Indian companies face in ensuring ESG compliance. The article also analyses the role of legal and regulatory advisors in ESG due diligence, disclosure, M&A transaction, and investor communication. So the article not only explains ESG as a corporate responsibility bur as a emerging regulatory law in India.  

Introduction

In today’s world, environmental, social, and governance (ESG) compliance has become a center of focus for the Indian companies. It does not remains merely a corporate buzzword.[1] It has evolves into a regulatory framework for the organizations. As India is transforming into global financial ecosystem, companies are expected to focus not merely on their profit metrics but also ensure environmental, social, and governance responsibility.

Acknowledge this transition, the Securitas and Exchange Board of India (SEBI) has made it mandatory for the companies to make ESG activity report. This step represents a shift from voluntary CSR reporting to a structured compliance driven reporting.

This article explores various dimensions of ESG such as its regulatory framework in India, the role of SEBI and BRSR mandate, challenges faced by the Indian companies, a robust legal framework to ensure genuine ESG compliance. The ESG reporting is nothing but a amalgamation data about the impact of any company or organization on environment, social, and governance. These reports aims at providing all the details related to what are the possible risks that an organization is facing or may face in the future. It also helps in ensuring transparency in between organization and its stakeholders that subsequently helps in gaining a better knowledge about the companies ESG activities.

Introduction to ESG:

ESG stands for Environmental, Social, and governance. ESG is a regulatory framework made to encourage business in carrying out their functioning responsibly, ensuring sustainability. Let us dive into examining what the three pillars of ESG stands for and what it encompasses

The three pillars of ESG are:

1. Environmental:

This pillar says a lot about impacts of the company on the environment degradation. Which includes the following:

• Carbon footprints and greenhouse emissions
• Waste management
• Air and water pollution
• Deforestation
• Energy consumption and efficiency

A company that carries out strong environmental practices helps in mitigating the potential harm to the plant. Complies with environmental laws, and adopts sustainable technologies. For example, switching to solar power and reducing plastic packaging are environmentally responsible choices.

2. Social:

Its social aspect talks about how a company treats people like its employees, customers, suppliers and other stakeholders. It includes following:

• Labor rights and equal wage distribution
• Inclusion and workplace diversity
• Ensuring safety standards
• Consumer protection and data privacy

Companies that adhere to their social responsibility creates a environment that is safe, fair, and ethical. For examples, incorporating anti-harassment policies and providing maternity leave reflects a good social responsibility.

3. Governance:

Governance is also an aspect in ESG. Key aspects are:

• Ensuring biodiversity and independence
• Ensuring transparency in financial reporting
• Upholding anti-corruption and anti-bribery measures
• Upholding shareholders right and proper disclosure
• Incorporating compensation policies
• Internal audits and compliance checks

Businesses with sound governance gain the public’s, regulators’, and investors’ trust..[2] For instance, a company with an independent audit committee and regular disclosures is considered well-governed.

Why is ESG important?

ESG matters because it provides and address risks, be a more socially conscious be environmentally conscious in the future, meet the basic requirements of stakeholders, comprehend and abide by rules, and get better access to capital.

Companies can reduce expenses, create in investors, mitigate potential risks, and enhance their credibility by taking ESG factors in account. ESG ensures that companies operate ethically in contributing to a sustainable future by harmonizing with rising consumer and societal expectations and by responding to regulatory changes.

Why It Matters for Corporate Lawyers and Policymakers

• ESG issues intersect with company law, environmental law, labour law, and financial regulation.
• Along with the rapidly growing legal compliance on ESG principles it does not remains a soft law it is now slowly transforming into a hard law, especially with the introduction of a structured disclosure mandate.
• Corporate lawyers must have the knowledge of ESG’s compliance, and potential risk like false data reporting, green washing, and fiduciary failures.

Origin of ESG: From CSR to Mandatory Disclosures

The concept of ESG developed from the broader idea of Corporate Social Responsibility (CSR), which initially pushed companies to focus on the social and environmental aspects. However, with time, stakeholders started demanding more strong policies which includes measurable, transparent, and enforceable commitments rather than vague promises. This transition gave rise to ESG compliance, which enforces environmental, social, and governance factors into the function of the organization that will lead to more responsible decision-making and risk management. Globally, frameworks like the UN Principles for Responsible Investment (2006) and TCFD (2017) pushed for standardized ESG disclosures.

How ESG Influences Investment Decisions and Regulatory Standards Globally

ESG compliance has now globally become a crucial factor that is looked by the investors, who evaluates a company’s environmental impact, labor practices, and governance structure before investing. Regulatory bodies across the world have introduced mandatory ESG disclosures, sustainability reporting norms, and green finance regulations some of these bodies include the EU, US SEC, and UK’s FCA—. This shift reflects a rapidly rising consensus that ESG compliance is not just ethical, but financially and legally essential for long-term business run.

Regulatory Framework Governing ESG Compliance in India

India’s approach towards ESG compliance is integrated through several statutory provisions, regulatory guidelines, and voluntary reporting frameworks. However there is no single codified ESG law in India, several legal instruments impose obligations that is in harmony with environmental, social, and governance principles. Regulatory mechanism is primarily driven by SEBI, along with provisions under the Companies Act, 2013, environmental laws, and sector-specific regulations.

1. The Report on Business Responsibility and Sustainability (BRSR) and SEBI

The Securities and Exchange Board of India (SEBI) has played a crucial role in making ESG reporting mandatory for listed entities:

• In May 2021, SEBI introduced the (Business Responsibility and Sustainability Report) BRSR framework, which replaced the earlier Business Responsibility Report (BRR) which made it mandatory for the top 1000 listed companies (by market cap) from FY 2022–23. the companies to disclose ESG activities.
• A number of factors are included in the BRSR reporting, including
  • Environmental impact (e.g., energy, emissions, water use)
  • Social factors (e.g., diversity, employee wellbeing, community welfare)
  • Governance mechanisms (e.g., ethics, grievance redressers, risk oversight, anti-corruption measures)
  • The disclosures support accountability, openness, and investor protection.

Although SEBI has made it mandatory for the listed companies to disclose the ESG activities, BRSR compliance also creates a soft-law obligation that will help in shaping the corporate behavior and align Indian companies on global ESG norms.

2. CSR and Governance Provisions in the Companies Act of 2013

The Companies Act, 2013 is another instrument which aligns ESG goals:

Corporate Social Responsibility (CSR) – Section 135[3]

• Section 135 makes it mandatory for the companies having net worth of ₹500 core, turnover of ₹1000 core, or net profit of ₹5 core to spend 2% of average net profits on CSR activities.
• CSR activities includes education, healthcare, environmental sustainability which certainly similar with the ESG goals.
• the CSR committee consists of board of directors who have certain responsibility towards the company such as:
• Section 134: The members of the board are responsible to make a report that should include risk management and energy conservation efforts.
• Section 149: Ensure diversity, accountability, transparency and appoint independent directors.
•  Section 177: Establish an audit committee and guarantee moral supervision.

CSR vs. ESG

ESG started by CSR.  ESG wouldn’t even exist in without the presence of CSR.  While corporate social responsibility (CSR) tries to keep organizations accountable, ESG standards make their commitments quantifiable.

CSR is an approach of self-regulation to make sure that an organization’s actions serve the environment, clients, staff, communities, and others.

ESG takes on CSR and grows upon it in an aspect that transcends it beyond limits of pure compassion to a quantifiable collection of metrics that investors and customers can use to comprehend a company’s internal governance, social, and philanthropic policies.

CSR includes sustainability strategies that is necessary to be followed by the employees of the organization in order to make sure that the companies carries out the business in ethical manner.

On the other hand Environmental, Social and Governance (ESG) refers to measures that will evaluate the sustainability level from the company’s overall business activities.

In a way it can be seen that the major difference between CSR and ESG is that the CSR is framework that needs to be followed to ensure sustainability whereas ESG is more like a measure that sustainability levels in a organization which has now became more relevant that helps in attracting investors and other stakeholders.

In the recent years, ESG is highly in demand but a decade ago CSR was a buzzword for sustainable business activities.

Many people use the term ESG and CSR interchangeably and some think that ESG is another term for CSR, but more organized and measurable but both are different. Companies that follow ESG have to track, measure and report the activities of the companies that are likely to impact the environment, also report on how they treat their employees, the transparency, work ethics, and diversity of their organization.

 In addition to this, ESG is not only about doing well but also making the companies responsible for carrying out their business activities responsibly that will help the company in the long run by reporting potential risks and taking accountable decision making.

Judicial Trends in ESG: Evolving Legal Interpretations

Although ESG has emerged as a relatively new in India as a formal regulatory framework Indian courts already have principles that supports ESG values, especially in the context of environment and social settings. Indian courts contains a range of public interest litigation (PILs), landmark judgments and judicial interpretation, which provides a basis of responsible business conduct, environmental protection and social accountability

• Environmental Sustainability and Judicial Intervention :

Apex courts and various high courts of India have highlighted the fact tat healthy environment is a fundamental right under article 21 (Right to life) of the constitution.

• Vellore citizen welfare forum v. union of India (1996)

The Supreme Court introduced the precautionary principle and polluter pays principle are central to ESGs environmental pillar. The court directed that the industries must control environmental damage by using sustainable practices in their business.

• Social Responsibility and Labour Rights:

When it comes to human rights, labor rights, and social standards, the “s” in ESG stands for social. Over the time Indian courts have laid down their rulings on several cases that protects the dignity and right workers and vulnerable section.[4]

• People’s Union for Democratic Rights v. Union of India (1982)

The court held that contractors not complying with the minimum wage and labour laws will be liable for violation of fundamental rights. This obligates the companies to carry out their business in fair and ethical manner and be accountable in maintaining the social standards.

• Use of PIL in ESG-Related Matters:

For ESG align principles Public Interest Litigation (PIL) has been instrumental long before ESG was a formal concept. PILs have been helpful in shedding light upon the following issues:

• Environmental degradation because of corporate degradation.
• Public harm due to the lack of good corporate governance.

The PILs helped in encouraging the corporations to exhibit active role which reflects the transparency, accountability and sustainability efforts taken by the companies, which has now become a part of modern ESG framework.[5]

• Governance and Corporate Accountability

Governance is also an important aspect of ESG which also involves certain legal interpretations through cases which involves insider trading, fraud, and board- level negligence.

• Sahara India Real Estate Corp. Ltd. v. SEBI (2012)

The Supreme Court gave special importance to investor protection, financial transparency, and regulatory compliance that are core themes of governance under ESG.

Comparative Jurisprudence on ESG Compliance:

a) Due Diligence Law and the Corporate Sustainability Reporting Directive (CSRD) of the European Union:

The European Union has transformed into global leader in ESG compliance through laws such as:

• corporate sustainability reporting directive (CSRD):

The CSRD which was introduced in 2024, this law obligates big companies to report the information related to sustainability which will include environmental risks, social impacts, and governance activities.

• Corporate Sustainability Due Diligence Directive (CSDDD):

This law makes it mandatory for the companies to identify, prevent and mitigate potential risks that can cause harm to human rights and environmental harm.

These legal framework makes it legally binding upon the companies to comply with ESG principles, also lays down penalties for non-compliance which demonstrates Europe’s shift from voluntary to mandatory ESG obligations.

b) U.S.: SEC’s ESG Disclosure Norms

The U.S. Securities and Exchange Commission (SEC) has formalized new rules that needs to be followed by the publicly listed companies which requires the companies to disclose their climate-related risks that include:

• Climate risk governance
• Greenhouse gas (GHG) emissions
• Material ESG risks affecting operations

However there is still ongoing debate on these rules, the rules has been instrumental in growing demands for investor-grade information.

c) Lessons India Can Learn

1. Shift from investor grade information to mandatory structured ESG reporting: India’s current framework requires some major improvements that will be helpful in aligning with the global standards, which is why India should focus on expanding BRSR disclosures to more set of companies not just the listed ones.
2. Introduce supply chain due diligence: India can inspiration from EU’s Due Diligence Law to impose obligation snot just on the parent companies but also their suppliers and subsidies.
3. Legal accountability and independent audits: India should create a legal consequence for incorrect or misleading claims on sustainability by mandating the third-party ESG audits.

Conclusion and way forward:

While India has several laws which aligns with ESG principles, still there is need for more strengthened regulatory framework in India. There are many aspects of ESG that is not regulated and many of them are not consistently enforced which results in limiting their effectiveness.

In order to fulfill these gaps, India needs to create a comprehensive national ESG legislation, inspired by global models like the EU’s Corporate Sustainability Reporting Directive (CSRD), but it should be formulated according to the socio-economic and developmental priorities of India. There should be mandatory non-financial ESG disclosures by the companies, which will be helpful in maintaining legal accountability and transparency of the organizations. These measures will be helpful for the stakeholders in having a deep understanding of the company’s efforts in carrying out sustainable business practices not just focusing on profit and losses, which in a way will help them to make informed decisions.

Strong ESG regulatory framework will not only encourage environmental and social responsibility but will; also help India in attracting investors globally, form a basis for long-term economic stability.[6]

Reference(S):

[1] ESG: More Than a Buzzword, Collibra (Oct. 2, 2023), https://www.collibra.com/podcasts/esg-more-than-a-buzzword

[2] Corporate Governance, Diligent (last visited July 24, 2025), https://www.diligent.com/resources/guides/corporate-governance

[3] Section 135: Corporate Social Responsibility, CA2013.com, last visited July 24, 2025, https://ca2013.com/135-corporate-social-responsibility/

[4] “ESG 101: What Does ‘Social’ in ESG Mean?”, OneTrust (last visited July 24, 2025), https://www.onetrust.com/blog/esg-101-what-does-social-in-esg-mea

[5] “Industrials – ESG Shaping the Future,” DLA Piper (Sept. 2020), https://www.dlapiper.com/en/insights/publications/2020/09/plc-article-wrapper—industrials

[6] Navigating the Global ESG Landscape: Lessons and Opportunities for India, ConsultaValon (last visited July 24, 2025), https://www.consultavalon.com/our-blog/navigating-the-global-esg-landscape-lessons-and-opportunities-for-india/