Recently, the Standing Committee on Finance’s report on the MCA’s demands for grants for 2025-26 was tabled in the Lok Sabha. The report comprises many recommendations on Environmental, Social, and Governance (ESG) issue.
Overview of Recommendations
- Dedicated ESG Oversight Body: Establishing a unit within the Ministry of Corporate Affairs would enhance monitoring and ensure that ESG regulations are enforced consistently.
- Fiduciary Responsibility: Amending the Companies Act, 2013 to make ESG objectives a fiduciary duty of corporate directors would legally bind boards to integrate sustainability into their strategic decisions.
- Penalties for Greenwashing: Introducing punitive measures against misleading ESG claims aims to prevent companies from exaggerating or fabricating their sustainability performance.
- Transparency in Reporting: Proposing a dedicated ESG chapter in the MCA’s Annual Report from FY 2025-26 underscores a commitment to greater transparency and accountability.
Implications for Corporate Governance
- Enhanced Accountability: With directors legally responsible for ESG integration, companies are likely to prioritize long-term sustainable practices rather than merely treating them as compliance exercises.
- Improved Investor Confidence: Robust oversight and transparent reporting can build trust among investors, who are increasingly considering ESG performance as a critical factor in their decision-making.
- Prevention of Greenwashing: By penalizing misleading claims, the framework could reduce instances of greenwashing, ensuring that sustainability claims are credible and backed by actual performance.
India’s ESG Steps
- Business Responsibility and Sustainability Reporting (BRSR) norms by SEBI:
- The Securities and Exchange Board of India (SEBI) has mandated the top 1,000 listed companies to disclose their ESG performance through the BRSR.
- National Guidelines on Responsible Business Conduct (NGRBCs).
- Confederation of Indian Industry (CII) launched “ESG Guidebook and Ready Reckoner for Boards of Directors”
(Sources: BL and PIB)
