ESG Compliance and Board-Level Responsibilities in Indian Companies

Introduction

Environmental, Social, and Governance (ESG) considerations have emerged as a cornerstone of modern corporate strategy and compliance. Indian companies, particularly listed and large unlisted entities, are witnessing a regulatory and investor-driven shift towards sustainability-focused operations. ESG performance is no longer merely a reputational matter—it is a regulatory, financial, and fiduciary obligation. At the forefront of this evolution are company directors, whose responsibilities now extend beyond profitability to sustainability, ethical governance, and societal impact.

Legal Backdrop of ESG in India

The Indian regulatory regime has seen accelerated integration of ESG principles, with the Securities and Exchange Board of India (SEBI) leading the charge through the Business Responsibility and Sustainability Report (BRSR) framework. Introduced in 2021 and made mandatory for the top 1000 listed companies by market capitalisation from FY 2022–23 onwards, the BRSR replaces the earlier Business Responsibility Report (BRR) and marks a significant broadening of disclosure requirements.

The Companies Act, 2013, while not ESG-specific, also supports sustainability objectives through provisions on:

• Corporate Social Responsibility (CSR) [Section 135]
• Board reporting and risk management [Section 134]
• Director duties to act in good faith towards stakeholders [Section 166]

In addition, environmental laws (such as the Environment Protection Act, 1986) and labour welfare legislation (including the Factories Act and the Occupational Safety, Health and Working Conditions Code, 2020) form part of the broader ESG compliance mosaic.

What Does ESG Mean for Directors?

Directors, especially those on the boards of listed companies, are expected to demonstrate active stewardship over ESG initiatives. Their responsibilities include:

Environmental Oversight

• Ensuring that the company adopts sustainable practices across operations.
• Monitoring compliance with environmental regulations.
• Overseeing climate risk disclosures, emissions reporting, energy and water usage tracking.

Social Accountability

• Ensuring adherence to labour laws, human rights standards, and workplace diversity and inclusion norms.
• Board-level monitoring of employee welfare schemes, gender parity, and anti-discrimination policies.
• Evaluation of community impact and stakeholder engagement strategies.

Governance Leadership

• Championing ethical practices and transparency in corporate affairs.
• Overseeing whistleblower mechanisms, anti-bribery policies, and data protection frameworks.
• Ensuring effective implementation of internal controls and governance charters.

The BRSR Mandate and Board Involvement

SEBI’s BRSR format, aligned with global sustainability frameworks like the GRI and TCFD, calls for:

• Quantitative disclosures on energy consumption, waste management, and greenhouse gas emissions.
• Qualitative disclosures on sustainability strategies, stakeholder consultations, and leadership commitments.

Boards are required to sign off on these reports. The responsibility no longer resides solely with CSR committees or sustainability officers—it has become a collective board accountability. Directors must be satisfied that:

• Data presented in BRSRs is accurate and auditable.
• Sustainability risks are integrated into enterprise risk management.
• ESG goals are aligned with the company’s long-term business strategy.

Risk of Non-Compliance and Liability Exposure

• Regulatory penalties from SEBI or Ministry of Corporate Affairs.
• Investor backlash, particularly from institutional investors with ESG mandates.
• Litigation risks, including shareholder activism and class actions.
• Reputational damage, with potential impact on market valuation and financing access.

While ESG-specific liability is still developing in Indian jurisprudence, directors may face personal exposure if lapses arise from willful default, misrepresentation, or breach of fiduciary duty under Section 166 of the Companies Act.

Global Alignment and Investor Expectations

Indian companies with global investor bases are expected to align with international ESG benchmarks such as:

• UN Sustainable Development Goals (SDGs)
• SASB Standards (Sustainability Accounting Standards Board)
• EU Green Taxonomy & CSRD (for entities with EU-facing operations)

Boardrooms are increasingly expected to possess ESG competence, and there is a growing trend of appointing Chief Sustainability Officers (CSOs) and establishing Sustainability Committees at the board level.

Best Practices for Boards

To meet ESG obligations effectively, directors should:

• Integrate ESG into strategic planning and risk frameworks.
• Mandate regular ESG reporting and assurance by third parties.
• Undertake periodic board training on sustainability issues.
• Embed ESG metrics in executive compensation and KPIs.
• Ensure whistleblower and grievance redressal systems are effective and safe.

Independent directors, in particular, must maintain a high degree of skepticism and ensure that sustainability disclosures are not merely cosmetic.

Conclusion

ESG compliance is not a peripheral concern—it is central to how businesses will be governed, funded, and evaluated in the coming decade. For directors, the shift implies more than periodic oversight; it demands continuous engagement, accountability, and a proactive mindset. As the legal and market framework continues to evolve, Indian boards must stay ahead of the curve—not just to mitigate risk, but to ensure resilience, relevance, and responsible growth.