Thoughts On ESG In India
ESG norms are gaining significance in India, driven by both local regulatory developments and global trends
Overview of ESG in India
Environmental, Social, and Governance (ESG) comprises of an extensive range of issues, from environmental sustainability and social responsibility to corporate governance. ESG norms are gaining significance in India, driven by both local regulatory developments and global trends. In India, the regulatory framework for ESG is multi-faceted, involving various laws and guidelines.
Legal Framework
1. Environmental Regulations:
- Air (Prevention and Control of Pollution) Act, 1981 and Water (Prevention and Control of Pollution) Act, 1974: These Acts focus on controlling and reducing air and water pollution.
- Environment Protection Act, 1986: This Act provides the framework for environmental protection and includes regulations on pollution control, waste management, and conservation of natural resources.
- Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2016: These rules regulate the management and disposal of hazardous waste.
- Forest (Conservation) Act, 1986: This Act focuses on analysis and checks on deforestation.
- Wildlife (Protection) Act, 1972: This Act provides for the protection of wild animals, plants and birds and prohibits hunting of birds & animals and damaging, uprooting, picking, destroying, etc. any specified plant from any forest.
- Biological Diversity Act, 2002: This Act provides for conservation of biological diversity, sustainable use of components and fair and equitable sharing of the benefits arising out of the use of biological resources and knowledge.
2. Social Regulations:
- Companies Act, 2013: Section 135 mandates Corporate Social Responsibility (CSR) for companies meeting certain financial thresholds wherein companies are required to spend at least 2% of their average net profits on CSR activities.
- Factories Act, 1948: This Act ensures the health, welfare, and safety of workers in factories.
3. Governance Regulations:
- Securities and Exchange Board of India (SEBI) Regulations: SEBI has introduced the Business Responsibility and Sustainability Report (BRSR) Core framework, which mandates ESG disclosures by the top 250 listed entities (by market capitalization) in India during the financial year 2024-25.
- Companies Act, 2013: This Act includes provisions for board diversity, independent directors, and audit committees to enhance corporate governance.
Policy Issues
1. Alignment with Global Standards: Indian regulations are progressively aligning with global ESG standards, such as the Global Reporting Initiative (GRI) and the United Nations Global Compact (UNGC). However, there is still a need for significant harmonization to ensure consistency and comparability of ESG data.
2. Fragmented Regulatory Framework: The ESG regulatory framework in India is spread across various laws and regulations, leading to a fragmented approach, which may create challenges for companies in ensuring compliance and integrating ESG into their business strategies.
3. Mandatory vs. Voluntary Disclosures: There is still a debate on whether ESG reporting should be mandatory for all companies or remain voluntary while SEBI’s BRSR Core framework mandates ESG disclosures for top listed companies. This affects the level of transparency and accountability in ESG practices.
Regulatory Challenges
1. Implementation: Effective implementation of ESG regulations remains a challenge. Regulatory bodies need to ensure that companies not only comply with the regulations but also genuinely assimilate ESG principles into their regular operations.
2. Capacity Building: Companies, especially SMEs, need to ensure capacity building including training, resources, and support from regulatory bodies & industry associations, to understand and effectively implement ESG practices.
3. Stakeholder Engagement: Continuous engagement with stakeholders such as investors, employees, and communities, is critical for the success of ESG initiatives. Companies need to adopt a proactive approach in communicating their ESG efforts and addressing stakeholder concerns.
Conclusion
The ESG outlook in India is rapidly evolving with significant regulatory developments aimed at promoting sustainable and responsible business practices. However, challenges remain in terms of implementation, enforcement, and alignment with global standards. As thought leaders and experts, we must emphasize on the importance of cohesive regulatory framework, mandatory disclosures, and stakeholder engagement to drive meaningful ESG integration in India.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.