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CENTRE FOR POSTGRADUATE LEGAL STUDIES

ENVIRONMENTAL SOCIAL AND GOVERNANCE DISCLOSURES:

“UNDERSTANDING OF THE BASICS”

BY

SHRETIMA BAGRI

23010093

2023-24

DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE MASTER OF

LAWS (LLM) CORPORATE AND FINANCIAL LAW

PROF. RASHMI PATOWARY

ASSISTANT PROFESSOR

JINDAL GLOBAL LAW SCHOOL

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DECLARATION

I, Shretima Bagri, hereby declare that this dissertation titled “Environmental Social And
Governance Disclosures: Understanding Of The Basics” is towards completion of the one-year
residential Masters in Law programme (LLM) in Corporate Law and Financial Policy at Centre
of Postgraduate Legal Studies in OP Jindal Global University, under the exceptional support and
able guidance of my supervisor Professor Rashmi Patowary, Assistant Professor at Jindal Global
Law School.

I further declare that this dissertation is the synthesis of my original work and analysis based on
case laws, research papers, reports, scholarly works, news articles etc. which have been duly
cited wherever they are referred during the course of the given dissertation. I have duly adhered
to the CPGLS guidelines and dissertation policy for the captioned LLM programme.

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 TABLE OF CONTENTS

ACKNOWLEDGMENT

ABSTRACT

INTRODUCTION

CHAPTER REVIEW

RESEARCH QUESTIONS

1) INTRODUCTION

2) BACKGROUND AND THEORETICAL FRAMEWORK OF ESG DISCLOSURE

2.1 Introduction

2.2 Evolution of Corporate Social Responsibility (CSR)

2.3 Environment, Social and Corporate Governance

2.4 Framework of ESG Disclosure

2.5 Evolution of ESG Disclosure in India

3) IMPORTANCE OF ESG DISCLOSURE AND CORPORATE EXCELLENCE

3.1 Importance of ESG in Corporate Governance

3.1.1 Integrating ESG to Corporate Governance

3.1.2 ESG Provides A Useful Tool For Investors

3.1.3 Smarter And Sounder Investments

3.1.4 Streamlined Corporate Governance

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 3.2 ESG and Corporate Performance

4) REGULATORY FRAMEWORK OF ESG DISCLOSURE

4.1 Introduction

4.2 Regulations & Policies for ESG Disclosure

4.3 Key Laws and Regulations For Sustainable Finance

4.3.1 Indian Companies Act, 2013

4.3.2 RBI Regulations

4.3.3 Recent Developments of ESG Disclosure in India

4.4 Relevancy of ESG Disclosure in Sustainable Finance

4.5 BRSR (Business Responsibility And Sustainability Report )

4.6 Importance of ESG in Corporate Governance

4.6.1 Integrating ESG in Corporate Governance

5) ANALYSING THE ROLE OF APPELLATE AUTHORITY IN RENDERING

ENVIRONMENTAL JUSTICE

5.1 ESG and Rule of Law

5.2 Case studies

6) CONCLUSION AND SUGGESTION

6.1 Conclusion

6.2 Suggestion

7) BIBLIOGRAPHY

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 ACKNOWLEDGEMENT:

I want to sincerely thank my dissertation supervisor for all of her assistance in seeing my
dissertation through to completion. My supervisor helped me learn more about the subject and
was always willing to offer advice and recommendations that would help me finish this
dissertation more effectively. I could not have finished my dissertation under her direction. Her
insightful comments and recommendations have been kind and helpful.

Thank you.

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 ABSTRACT

The present study, entitled "Environmental Social And Governance Disclosures- Understanding
of The Basics": This paper looks at how things like environmental, social and business rules
(ESG) are shown in India. The article talks about why ESG rules are important for businesses. It
shows how these rules have changed over time and looks at the history of companies being
socially responsible (CSR). The study looks into how ideas about ESG (Environmental, Social
and Governance) are put to use in company leadership. It shows their ability for encouraging
careful investments, smart management and better business results. This paper looks at key laws
like the Indian Companies Act of 2013, RBI rules and current progress in India for understanding
how ESG disclosure is handled.

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CHAPTER REVIEW

The dissertation delves into the history, theoretical underpinnings, and practical ramifications of
ESG disclosure. It provides insights into the fundamental ideas guiding ethical corporate
behavior by outlining the development of CSR and the theoretical underpinnings of ESG
disclosure.

Chapter 2 provides a view of the evolution of ESG disclosure in India. The dissertation adopts a
nuanced approach by placing ESG inside the Indian context and acknowledging the cultural,
economic, and regulatory subtleties.

Chapter 3 extends the discussion to a higher level by explaining the significance of ESG
disclosure and how it relates to business excellence. A comprehensive view of the concrete
advantages that result from adopting ESG principles is given in the parts that follow, which
cover everything from ESG as an investor tool to its function in simplified corporate governance.

Chapter 4 effortlessly flows into the dissertation's most important section, the Regulatory
Framework of ESG Disclosure. Regulatory guidelines play a crucial role in defining ESG
practices, as the introduction acknowledges. Deepening the story is the examination of current
rules, guidelines, and legislation, like the RBI Regulations and the Indian Companies Act of
2013..

The dissertation provides a nuanced understanding of ESG disclosure that goes beyond a simple
theoretical construct by striking a commendable balance between theoretical exploration and
practical application within the Indian context.

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RESEARCH QUESTION

1. How do ESG disclosures and ratings strengthen the legal accountability and
transparency of a company's operations?

2. How will the “Business Responsibility and Sustainability Report” ("BRSR") help in
maintaining the rights of the investors and stakeholders?

3. How is the concept of ESG disclosures supported by theoretical frameworks

including Stakeholder Theory and Corporate Social Responsibility (CSR)?

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CHAPTER 1: INTRODUCTION

Communities that are progressive place a high priority on energy efficiency, which has several
advantages. These communities protect valuable natural resources by limiting their energy usage,
which also lessens their need for limited fossil fuels. This comprehensive approach promotes
resilience, economic efficiency, and a sustainable development model in addition to ensuring
environmental sustainability. Lack of financing for environmentally friendly infrastructure is
likely the most prevalent barrier to the expansion of the "green city," particularly during the
current economic crisis. This is especially true given the current state of the economy. 1 In order
to address the issue of valuable natural resources like land and water, the National Bank for
Agricultural and Rural Development (NABARD) organized a training on the subject of
"Opportunities in Green Finance" for bankers and other stakeholders. In addition, governments
and/or international organizations use something that is referred to as a "Public Financial
Mechanism" to provide coverage for hazards that are novel to pension funds or that cannot be
covered in markets that already exist.2 The growing acceptance of ESG disclosures in India is an
indication of growing recognition of the significance of sustainable and ethical corporate
practices. In order to uphold the rights of investors and stakeholders, the business responsibility
and sustainability report are highlighted in this study, which explores the quickly evolving ESG
landscape in India as a result of CSR initiatives and stakeholder theory. Companies looking to
prosper in a world where sustainability and ethical business practices are critical must grasp the
fundamentals of ESG. Proactive and honest disclosures will be crucial differentiators as ESG
factors continue to influence the business environment, building trust and guaranteeing long-term
success.

1
Volz, U., Morgan, P.J. and Yoshino, N. (2019) Routledge Handbook of Banking and Finance in Asia. Abingdon,
Oxon: Routledge.
2
Volz, U., Morgan, P.J. and Yoshino, N. (2019) Routledge Handbook of Banking and Finance in Asia. Abingdon,
Oxon: Routledge.

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CHAPTER 2: BACKGROUND AND THEORETICAL
FRAMEWORK OF ESG DISCLOSURE

2.1 Introduction

ESG disclosure can be defined as the practice of an organization disclosing information about its
action/performance in the key primary areas such as environmental impact, social responsibility,
and procedures determining governance. One of the signs in this regard is the implementation of
sustainability and ESG disclosures, which serve to encourage corporations to expand their focus
beyond conventional finance-centric approaches.3

2.2 Evolution of CSR

The evolution of CSR has advanced significantly in India, indicating influences from both the
regional and global arenas. The Pre-Independence Era, the Post-Independence Industrialization
Phase, and the Mandatory CSR Legislation (2013) 4, and other phases may be used to understand
the journey.

Without a structured or planned framework, CSR initiatives in the early post-independence era
(1950s–1960s) were mostly focused on local community development. A significant turning
point was the 2013 adoption of Section 135 of the Companies Act mandated that certain
corporations are to allocate a portion of revenue to CSR initiatives. Companies then started
formalizing their CSR plans, setting up reporting systems and stressing openness in their
operations starting in 20145.

CSR and ESG are linked frameworks that direct companies toward moral, sustainable behaviors.
Though they have different roots, they are similar in that they promote ethical and sustainable

3
Sharma, P., Panday, P., & Dangwal, R. C. (2020). Determinants of environmental, social and corporate governance
(ESG) disclosure: a study of Indian companies. International Journal of Disclosure and Governance, 17, 208-217.
4
Chauhan, K. K., & Dawra, S. (2017). Corporate Social Responsibility (CSR) in India–Evolution and Challenges
(From Ancient Period to Present Age). International Journal of Applied Business and Economic Research, 15(22),
23-36.
5
Kannan, P. (2021). Evolution and Importance of CSR in the Indian Context. Issue 5 Int'l JL Mgmt. & Human., 4,
1654.

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business practices. Engaging a variety of stakeholders and producing value that lasts longer than
financial measurements are key components of both. ESG, which incorporates governance
methods, is closely aligned with CSR's modern focus. Accountability is fostered by common
goals in risk management, reporting, transparency, and long-term value development6.

2.3 Environmental, Social and Corporate Governance

The overall strategy of an organization is intended to integrate with the ESG framework. The
Sustainable Development Goals (SDGs), which are based on what UN has been doing since the
1980s, are being under more pressure to incorporate ESG data as of the year 2020.

1. Environmental: The term "environmental variables" refers to the environmental effect

(or impacts) and management of risk strategies of an organization. These include both
direct and secondary pollution of greenhouse gasses, the responsibility that management
exercises over environmental assets and physical climate threats (like climate change and
fires).7
2. Social: The "social component" refers to the relationships that an organization has with
its various constituents. It further focuses the impact an organization has on the
communities around which one operates. One of the hallmarks of ESG is the way social
impact requirements have been extended to supply chain partners outside the boundaries
of the company, particularly to those in developing nations where labor and
environmental laws are usually less strict.
3. Governance: "Corporate governance" refers to the management and leadership structure
that exists within an organization. ESG analysts will make an effort to effectively
comprehend how shareholder rights are perceived and protected, how stakeholder
expectations are connected to leadership benefits.

2.4 Framework of ESG Disclosure

6
Ibid
7
“Sustainable Investing | Institutional | Manulife Investment Management” (EN, September 9, 2022)
https://www.manulifeim.com/institutional/global/en/sustainability

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An essential equipment for companies to communicate its dedication to sustainability and moral
business conduct is the ESG disclosure framework. Environmental factors encompass an
organization's impact on the ecosystem, encompassing aspects like carbon emissions and
resource usage. Social aspects look into how the business interacts with its employees, the
community, and the effects on society. Companies may increase public, stakeholder, and investor
trust while also advancing the global goal of sustainable development by adopting accountability
and transparency.8

2.5 Evolution of ESG Disclosure in India

Companies are required by Section 134(m) of the Act to include an annual report on energy
conservation, prepared by their Board of Directors, with their annual financial statement. The
Companies (Accounts) Rules, 2014's Rule 8(3)(A) has the clause relating to this requirement. It
states that the board is required to furnish information regarding energy conservation.

Regulation 34(3) of the SEBI (Listing Obligation and Disclosure Requirements) Regulation,
2015 further requires companies to inclulcate information about opportunities, threats and
significant concerns in their annual reports. It is pertinent to mention at this juncture that the
existing disclosure regulations do not mandate that companies track and report their progress
over time.

SEBI in 2017 published a circular highlighting disclosure requirement for the issuance and
listing of green debt securities. The document outlines a series of disclosures that an organization
is required to present in the offer documentation both before and after a project funded via green
debt is launched. It is an addition to the SEBI (Issue and Listing of Debt Securities) Regulation,
2008.

The Indian Banks' Association (IBA) released the National Voluntary Guidelines for
Responsible Financing in conjunction with the previously mentioned SEBI circular. This
integration is crucial to mitigate any negative effects on both the institutions themselves and
society as a whole. Nevertheless, the current Guidelines lack a comprehensive structure covering
a reliable and rather transparent issuance of green debt instruments.

8
Singhania, M., & Saini, N. (2023). The institutional framework of ESG disclosures: a comparative analysis of
developed and developing countries. Journal of Sustainable Finance & Investment, 13(1), 516-559 .

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CHAPTER 3: IMPORTANCE OF ESG DISCLOSURE AND CORPORATE
EXCELLENCE

3.1 Importance of ESG In Corporate Governance

The discipline of corporate governance is undergoing constant change, much like the evolving
systems that hold companies accountable. ESG has become important in today's corporate
governance discourse.

Shareholder involvement facilitates the integration of ESG factors into corporate governance.
Shareholders have the responsibility of overseeing corporate governance, including the task of
ensuring that corporations maintain a robust management framework and exhibit commendable
ethical conduct, in addition to achieving favorable financial outcomes.

Investors are calling for the incorporation of ESG principles in the corporate governance
structures due to growing significance of environmental and social concerns. This enables them
to make well-informed investment choices by considering the extent to which firms align with
these principles9.

3.1.1 Integrating ESG to Corporate Governance

When making investment choices, we need to consider the environment, social issues, and
company leadership (ESG factors). Making a big profit is important but so is stopping the
company's power from hurting nature or people rights. Companies use ESG factors in their risk
management and checking out risks. These are also part of how they run the business to find out
about any possible problems or odds on happening from these issues.

3.1.2 ESG Provides a Useful Tool for Investors

Investors must have a thorough awareness of and carefully consider the social, environmental,
and governance risks associated with the companies to which they allocate their capital. ESG

9
Ahluwalia, R. (2018). Corporate Social Responsibility in India: Evolution Continuum of Philanthropic Practices.
International Journal of Research and Analytical Reviews, 5(1).

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(Environmental, Social, and Governance) is a framework that may be used to achieve this
objective. ESG factors provide a framework for assessing firms, enabling investors to discern
potential possibilities and hazards linked with these companies.10

This change to include ESG is because people understand that these things matter for a
company's money success in the long run. So, in today's situation, businesses are expected to
share important ESG details and show how they are handling these matters.

3.1.3 Smarter and Sounder Investments

The ESG framework is a comprehensive tool utilised in organizational assessment and

evaluation of the efficacy of corporate governance practices. It will become increasingly
important for businesses to demonstrate effective management of their ESG concerns as
investors' understanding of the importance of these factors and how they affect investment
decisions grows.

For instance, if one is contemplating an investment in an energy corporation that has faced
censure for its environmental performance or has been subject to shareholder criticism regarding
its stance on climate change, it would be prudent to refrain from making such an investment until
these concerns have been effectively addressed by the company's management or through
regulatory measures such as the implementation of carbon taxes or cap-and-trade initiatives.
Investors can obtain valuable insights into a company's risk management and reduction efforts by
incorporating ESG factors. This allows investors to make informed and prudent investment
decisions.

3.1.4 Streamlined Corporate Governance

Effective corporate governance is contingent upon the implementation of appropriate entity

management practices, with particular emphasis on ESG issues. This entails the establishment of
effective stakeholder engagement and communication strategies, the implementation of
transparent and well-documented decision-making procedures, and the adoption of suitable
internal controls and risk management frameworks 11. By emphasizing effective entity
10
Ibid
11
Kannan, P. (2021). Evolution and Importance of CSR in the Indian Context. Issue 5 Int'l JL Mgmt. & Human., 4,
1654.

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management, organizations cannot only reduce possible risks associated with ESG factors but
also take advantage of possibilities to generate sustainable value and foster good outcomes for all
parties involved.

3.2 ESG and Corporate Performance

Now, businesses need to think about environmental, social and governance (ESG) factors when
looking at the success of companies. Planning for social and environmental factors (ESG) is
increasingly essential in an organization's work rather than just a short-lived trend. Firstly,
environmental considerations evaluate an organization's adherence to sustainable practices. Fair
work practices, diversity and inclusion, community involvement, and charity are given top
priority by a socially conscious business. Good social practices improve a business's reputation
while also fostering staff happiness and customer loyalty.12

In addition to meeting the needs of stakeholders and investors, businesses that priorities
sustainability and ethical business practices set themselves up for long-term success in a world
where social and environmental issues are gaining importance. 13 As the ESG movement gains
traction, it is clear that the confluence of financial and non-financial indicators is transforming
how we judge business performance.

12
Dalal, K. K., & Thaker, N. (2019). ESG and corporate financial performance: A panel study of Indian companies.
IUP Journal of Corporate Governance, 18(1), 44-59.
13
Ibid

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CHAPTER 4: REGULATORY FRAMEWORK OF ESG DISCLOSURE

4.1 Introduction

A global commitment to sustainable and ethical corporate practices is reflected in the

considerable evolution of the legislative framework controlling ESG disclosure. In respect of
sustainable finance, this chapter, "Regulation and Policy," explores the major laws and rules
influencing ESG disclosure. Important components include the RBI rules, the Indian Companies
Act of 2013, and other relevant recommendations are examined in this part. This thorough
analysis aims to provide insight into the legal frameworks that impact ESG disclosure and its
growing importance in relation to corporate governance14.

India's framework for regulating sustainable finance is still developing. Though Indian
authorities have set rules and guidelines for active integration of ESG standards in corporate
organizations’ operations and certain other specific elements of sustainable funding, the current
structure is focused on sustainable finance for energy.

4.2 Regulation and Policy for ESG Disclosure

During the Conference of Parties (COP), India put out the comprehensive framework including
five key components that constitute India's climate action plan:

● By the year 2030, 500 GW of non-fossil fuel energy will be produced in India.15

● The objective is to fulfill 50% of India's energy demands by year 2030 via the use of

renewable energy sources.16

14
Jha, M. K., & Rangarajan, K. (2020). Analysis of corporate sustainability performance and corporate financial
performance causal linkage in the Indian context. Asian Journal of Sustainability and Social Responsibility, 5(1), 1-
30.
15
Ibid
16
Renewable Energy in India. (n.d.). Pib.gov.in. https://pib.gov.in/FeaturesDeatils.aspx?NoteId=151141&ModuleId
%20=%202 (last visited 1 Dec. 2023)

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 ● The objective is to achieve a 1 billion tonnes reduction in the estimated total amount of

carbon emissions between 2021 and 2030.17

● The objective is to achieve a carbon intensity reduction of less than 45 percent in the

economy by the year 2030.18

● The objective is to attain carbon neutrality and achieve net zero emissions by year 2070. 19

● Although these goals are not explicitly included in any legal framework, the following

important laws and policies have been developed that address particular facets of
sustainable finance.20

4.3 Key laws and regulations for sustainable finance

4.3.1 Indian Companies Act, 2013

The Companies Act, 2013 (CA2013) is the legislation that first introduced the idea of CSR. In
India, the responsibility for monitoring and controlling all businesses and Limited Liability
Partnerships (LLPs) established within the nation falls on the Ministry of Corporate Affairs
(MCA). This stipulation pertains to corporations that possess a certain predetermined financial
value21.

These pieces of law address different areas of ESG in a fragmented approach:

17
India is committed to achieving the Net Zero emissions target by 2070 as announced by PM Modi, says Dr.
Jitendra Singh. (n.d.). Pib.gov.in. Retrieved December 1, 2023, from
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1961797#:~:text=Dr%20Jitendra%20Singh%20said%2C
%20India
18
Economic Survey 2023: India aims 45% reduction in emission intensity of its GDP by 2030 from 2005 levels.
(2023, January 31). Cnbctv18.com. https://www.cnbctv18.com/economy/economic-survey-2023-india-aims-45-
reduction-in-emission-intensity-of-its-gdp-by-2030-from-2005-levels-15810141.htm#:~:text=India%20aims%20to
%20reduce%20the
19
Net zero emissions target. (n.d.). Pib.gov.in. Retrieved December 1, 2023, from
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1945472#:~:text=In%20recognition%20of%20the%20Para
20
The Sustainable Finance Law Review – TTA.IN. (n.d.). Retrieved December 1, 2023, from https://tta.in/the-
sustainable-finance-law-review/
21
The Companies Act, 2013.

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 ● The Companies Act's Section 134(3)(m) mandates that the board’s report contain

comprehensive details regarding energy conservation. Among other relevant factors, this
includes details on the energy-saving measures put in place, their effects on factors of
energy conservation.

● In compliance with Section 166 of the Companies Act, directors are required to carry out

their responsibilities honestly. Whilst performing in the best interests of the business, its
employees, shareholders, the community, and company itself is necessary to protect the
environment.

● A CSR committee must be established by companies that meet certain turnover, or net

profit thresholds in accordance with the Companies CSR Rules of 2014. Companies that
meet the criteria must dedicate, each year, a minimum of 2% of their average net income
over the preceding three fiscal years to such initiatives.

● Listing Regulation 17(1)(b) of the Regulations states that if the chairperson of a listed

entity is a non-executive director who is not a manager, a promoter, or a person

connected to a promoter, then the chairperson's board must consist of one-third of
independent directors. However, if the chairperson does not meet these criteria, then at
least half of the board must be made up of independent directors.22

● Under Section 149 of the Firms Act, a female director must be a member of the boards of

various kinds of firms. Furthermore, Listing Regulation 17(1)(a) of Regulations states

that an independent director who identifies as female must be on the boards of the top
1,000 listed companies, as determined by market capitalization.

● Section 177 of the Companies Act, 2013 states that "board of every listed company and

certain classes of public companies to constitute an audit committee consisting of a

minimum of three directors, with independent directors forming a majority. Additionally,

22
Otek Ntsama UY and others, “Green Bonds Issuance: Insights in Low- and Middle-Income Countries” (2021) 6
International Journal of Corporate Social Responsibility http://dx.doi.org/10.1186/s40991-020-00056-0

18 | P a g e
 Regulation 18 of the Listing Regulations requires that at least two-thirds of a listed
entity's audit committee members are independent directors; however, in the case of a
listed entity having outstanding superior voting rights (SR) equity shares, all members
must be independent directors. It also requires that the chairperson of the audit committee
shall be an independent director."

● The Securities and Exchange Board of India, which oversees the nation's capital markets,

mandated that the top 100 listed companies submit a business responsibility report (BRR)
in 2012. The non-financial performance of the companies in relation to environmental,
social, and governance (ESG) factors was assessed in this report. The ‘Business
Responsibility and Sustainability Report’ (BRSR), which will take the place of the BRR
beginning with the fiscal year 2022–2023, was introduced by SEBI in May 2021,
expanding the purview of this reporting requirement. SEBI by Regulation 34(2)(f) of the
Listing Regulations and its circular issued on May 10, 2021, titled by listed entities
BRSR Circular has required the top 1,000 listed entities based on market capitalization. 23

SEBI regulations

SEBI has implemented a requirement stating that the 1,000 highest-ranked equity-listed
businesses, are required to release a report on corporate responsibility and sustainability based on
market capitalization. Furthermore, it is essential to include precise and quantifiable performance
indicators that aim to reveal the level of transparency achieved by the specified organizations in
relation to the nine principles outlined in the "National Guidelines on Responsibilities."

A framework for the Social Stock Exchange (SSE) has been recently implemented by the SEBI.
The main aim of this initiative is to give social entrepreneurs and non-profit organisations a
different way to obtain funding from institutional and individual investors. Additionally, the SSE
aims to attract CSR funding while ensuring transparency and accountability.24

4.3.2 RBI Regulations

23
Report of the Committee on Business Responsibility Reporting MINISTRY OF CORPORATE AFFAIRS
GOVERNMENT OF INDIA. (n.d.). https://www.mca.gov.in/Ministry/pdf/BRR_11082020.pdf
24
Key Highlights of the Social Stock Exchange Framework. (n.d.). Www.indiadonates.org. Retrieved December 1,
2023, from https://www.indiadonates.org/article/key-highlights-of-the-social-stock-exchange-framework-

19 | P a g e
The RBI released a statement in 2007 to guide the banking industry's contribution to non-
financial reporting, CSR, and environmentally friendly development. The RBI also mandates that
financial institutions give a certain portion of their adjusted net bank credit to particular priority
sectors. The two primary areas are renewable energy and social infrastructure.

4.3.3 Recent Developments of ESG in India

In September 2022, the government announced that it intended to raise funds for the construction
of environmentally friendly infrastructure by issuing sovereign green bonds worth up to 160
billion rupees. These funds will specifically be used for the manufacture of high-economy
modules. Furthermore, the government is now in the stage of completing India's national plan
about the blue economy25

4.4 Relevancy of ESG Disclosure in Sustainable Finance

ESG disclosures are important information for all parties involved in a business process. Within
the ecosystem of the financial markets, investors are vital. Therefore, investors place a great deal
of importance on the disclosure of ESG factors for the reasons listed below:

● This entails incorporating climate-related factors into the financing allocation and asset

assessment processes.

● Assessing the impact of an organization's operational practices on the environment and

society stands as one of the most crucial elements.

● The purpose of this study is to assess the potential effects of climate change on a

corporation's future financial security.

An example of this duty is found in Section 166(2) of the Companies Act, which mandates that
directors of a company shall act in good faith to further the company's objectives for the benefit
of the members collectively. Additionally, directors are required to act in the best interests of the
25
bilevel and others, "Understanding the Preference of Individual Retail Investors on Green Bond in India: An
Empirical Study" (Business Perspectives - Understanding the preference of individual retail investors on green bond
in India: An empirical study) https://www.businessperspectives.org/index.php/component/zoo/understanding-the-
preference-of-individual-retail-investors-on-green-bond-in-india-an-empirical-study

20 | P a g e
company, its employees, shareholders, the community, and the environment to ensure their
protection.26

Business enterprises have the potential to include their disclosures as a strategic component of
their marketing endeavors, enhancing their ability to appeal to a larger customer base 27. This
result highlights the significance of ESG disclosures for all parties involved in the business's
operations. Hence, it is essential to allocate significant attention towards the development of the
fundamental concepts and structure necessary for facilitating these disclosures28.

4.5 BRSR

To enhance the efficacy of the ESG disclosure system in India, the SEBI made revisions to
Regulation 34(2)(f) of the Listing Obligations and Disclosure Requirements (LODR)
Regulations. This amendment, implemented in May 2021, introduced the BRSR framework. The
proposed course of action entails replacing the existing Business Responsibility Report ("BRR").
The National Guidelines for Responsible Business Conduct (NGBRC) list nine principles that
BRSR demonstrates are adhered to. Starting from the financial year 2022-23, it will become
obligatory for the leading 1,000 listed businesses to provide yearly disclosures of ESG-related
information.29

The principal aim of the BRSR framework is to enhance transparency and encourage companies
to adopt sustainable and ethical business practices. It serves as a strategic framework for
organizations to foster a strong dedication to sustainability and effectively showcase this
commitment to stakeholders transparently.30

The Business Reporting on Sustainable Development Goals, or BRSR, is an initiative designed

to ensure that investors receive consistent and uniform data regarding ESG factors. The BRSR
26
Responsibility, C., & Testimony, P. E. (2013). Report.
27
An Introduction of ESG Disclosures in Indian Regulatory Space – Part 1. (2023a, February 28). Business Today.
https://www.businesstoday.in/technology/news/story/an-introduction-of-esg-disclosures-in-indian-regulatory-space-
part-1-371707-2023-02-28
28
Novisto. (2023, August 4). The Importance of Environmental, Social, and Governance Practices in Business -
Part 2. Novisto. https://novisto.com/the-importance-of-esg-practices-in-business-part-2/

29
Beerbaum, D. A research note on the consultation paper on Sustainability Reporting issued by the IFRS
Foundation.
30
Debnath, P., & Kanoo, R. Business Responsibility and Sustainability Reporting: A Way Forward for Indian
Corporate Disclosure.

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asks listed businesses to provide information about how closely they follow these principles. 31
By means of such reporting, the standards anticipate that organizations would concurrently
cultivate a heightened comprehension of the process of change that engenders more
responsibility inside their operations.32. According to the aforementioned guidelines, businesses
should–

● People should conduct themselves in a way that upholds the values of ethics,

accountability, transparency, and integrity.

● Make sure that the supply of goods and services complies with safety and sustainability

regulations.

● Ensure that all workers' welfare, including that of those who are a part of their value

chains, is recognized and promoted.

● Demonstrate a commitment to acknowledging and valuing the interests of all

stakeholders, while also being attentive and responsive to their needs and concerns.

● When participating in the process of shaping public and regulatory policy, it is essential

to adopt an approach that is both responsible and open.

● Facilitate the advancement of inclusive growth and equitable development, while

ensuring equal opportunities for all individuals.

● Organizations should actively interact with their customers and provide meaningful

benefits conscientiously and ethically.

An amendment to Listing Regulation 34(2)(f) was made, and it was formally announced on May
5, 2021, which is why BRSR was included in the regulatory rules. Additionally, the SEBI
31
Verma, B., Ishwar, A., & Sarosh, S. (2019). National Guidelines for Responsible Business Conduct and Their
Importance in Remodeling Business Responsibility and Accountability. NLIU Journal of Business Laws.
32
MCA releases national guidelines on responsible business conduct. (n.d.). Pib.gov.in.
https://pib.gov.in/Pressreleaseshare.aspx?PRID=1568750

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published a circular on May 10, 2021, which outlined the structure of the BRSR and provided a
guidance note to assist firms in understanding the extent of disclosures required.33

CHAPTER 5: ANALYSING THE ROLE OF APPELLATE

AUTHORITY IN RENDERING ENVIRONMENTAL JUSTICE

5.1. ESG AND RULE OF LAW

The Rule of Law, which guarantees meaningful property ownership, enforceable contracts, and equitable
treatment through the legal and regulatory system, is essential to the prosperity of capitalism.
Environmental and social problems are the two primary components of ESG. In order to handle E and S
difficulties, local regulation is essential, and the efficacy and caliber of regulation are important Rule of
Law concerns.34

Human rights regulations are becoming more and more prevalent in the business sector. One example is
France’s Loi de Vigilance, which mandates that major French corporations perform due diligence on their
suppliers, contractors, and directly controlled enterprises. 2019 saw the passage of the Dutch Child
Labour Due Diligence Act, which is applicable to all businesses that sell or provide services or goods to
Dutch consumers.35 Due diligence on modern slavery is mandated by the UK and Australia for their
businesses.

Like with several other nations, the EU is contemplating requiring its corporations to conduct due
diligence on human rights.36

5.1.1. Rule of law and governance aspect of ESG

The primary focus of investors on governance is people and processes. Other aspects of the G in ESG,
like as business and group structures, tax responsibilities, and anti-bribery and corruption procedures, are
also shaped by the legal system. Voting rights for shareholders are governed by the laws governing each
company’s incorporation, and the legal framework governs the fundamental avenues for influence.

33
Folkens, L., & Schneider, P. (2019). Social responsibility and sustainability: How companies and organizations
understand their sustainability reporting obligations. Social responsibility and sustainability: How businesses and
organizations can operate in a sustainable and socially responsible way, 159-188.
34
Climate Justice: A Rule of Law Approach for Transformative Climate Action, October 2021, International
Development Law Organisation
35
The role of the private sector in protecting civic space, February 2021, Chatham House
36
Shared Space under Pressure: Business Support for Civic Freedoms and Human Rights Defenders, August 2018,
Business and Human Rights Resource Centre

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The way in which the legal system interprets property rights determines certain fundamental investor
rights, like the ability to vote on significant deals and non-pre-emptive share issuances. Investors should
be concerned about the main company’s legal framework and adherence to the Rule of Law, as well as
the policies governing its subsidiaries.37

5.2. CASE STUDIES

Arm loses Chinese limb38

2020 saw an attempt by UK technology company Arm, a division of Japan’s Softbank, to remove the
head of its Chinese unit for purported conflicts of interest. Arm’s statement was superseded by a formal
denial given by the person who refused to accept the decision. While maintaining personal management
over the subsidiary, the individual continued to hold authority over the official company chop. The
procedure could take several months, and the police might be engaged, but Chinese authorities are
generally not interested in getting embroiled in business issues. An additional chop might be awarded if
the subsidiary were to re-register at the State Administration for Market Regulation. Foreign investors are
less confident as a result of this circumstance.

Cyber vulnerability

Russian hackers carried out the June 2017 NotPetya cyberattack, which was a malware campaign that
affected state and larger players in the Ukrainian economy. Global corporations operating in Ukraine,
such as Reckitt Benckiser, FedEx and Maersk, Mondelez, and Merck, were badly impacted. The effects
were far more widespread internationally. Over $10 billion is thought to have been spent on the strike
overall. The attack vector was an automated update of MeDoc tax accounting software, which was
implemented in at least 90% of enterprises operating in Ukraine as a result of a beneficial government
agreement. The corporation, in spite of its strong financial standing, neglected to patch its systems for
known vulnerabilities, so providing hackers with an opening. Simply by operating in a nation where the
Rule of Law did not stop an advantageous agreement. Transparency International’s Corruption Perception
Index placed Ukraine 130th out of 180 nations at the time of the NotPetya assault, and the country’s anti-
corruption measures were scored poorly.

ESG AND INDIA

The Prime Minister of India pledged, during the 2021 United Nations Climate Change Conference, to
attain net-zero carbon emissions by 2070. Consequently, Indian businesses are realizing their obligations

37
Rule of Law, Politics and Development, March 2016, Overseas Development Institute
38
The ‘chop’ reigns in corporate China, Financial Times, J

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beyond financial gains and quickly implementing ESG into their business plans. As the ESG movement
gains traction, investors are being forced to clarify, improve, and adapt their strategies.

From an economic, social, and regulatory standpoint, creating a strong ESG infrastructure is critical to
risk management, adaptation, accountability, and compliance. In order to fulfill its commitment to
achieving net zero emissions in the future, India seeks to incorporate environmental and human health,
cooperation and transparency, and transformation of diverse production modes. 39

Simplifying people and procedures is a key component of a company’s ESG agenda, and key and senior
management personnel are essential for developing strategy, promoting performance, communicating
outcomes, and spearheading an organization’s ESG transformation. To prevent unintentional
Greenwashing or ESG washing, businesses should identify and document ESG-driven risks and
opportunities as well as deal with transparency issues.

Directors’ Duties and ESG Considerations

Corporate governance prioritizes long-term, sustainable value over the exclusive pursuit of profits for
shareholders. In addition to shareholders, companies and their directors have an obligation to safeguard
sustainable long-term value for other stakeholders. Section 166(2) of the Companies Act, 2013 mandates
that directors act in good faith and in the best interests of the company, its workers, shareholders, the
community, and the preservation of the environment.

The Board’s responsibilities include establishing a thorough framework for risk management, offering
their unbiased opinion on issues pertaining to risk management, and evaluating and directing the
organization’s risk policy. Legal precedents, such as M.K. Ranjitsinh v. Union of India40, regard
directors’ particular need to take environmental protection into account on par with their responsibility to
other stakeholders, such as shareholders. According to Section 2(a) of the Environment (Protection) Act
1986, the relationships between water, air, land, people, plants, microorganisms, and property, the
Supreme Court of India has imported the definition of the term.

The Hon’ble Supreme Court’s decision in Tata Consultancy Services v. Cyrus Investments Private
Limited41 in relation to Section 166(2) of the Companies Act of 2013 noted that “the development history
of The business sector demonstrates that it has progressed from the A family to a contractual and
management relationship to a System of social duty and accountability. Next, it Continued, stating that
“what is prescribed under Section 166(2) combines public and private interests.
39
Why Rule of Law matters for development, May 2009, Overseas Development Institute
https://cdn.odi.org/media/documents/4192.pdf
40
MANU/SC/0288/2021
41
( 2021) 9 SCC 449

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CHAPTER 6: CONCLUSION AND SUGGESTIONS

6.1 Conclusion

Indian authorities are giving greater weight to a variety of aspects of sustainable finance,
including developing new market products to promote the adoption of energy-efficient
technology and broadening the current taxonomy of sustainable finance. Moreover, the SEBI has
mandated that issuers should assess "qualitative performance indicators and, when possible,
quantitative performance measures." However, SEBI has not specified any specific metrics for
this purpose. Consequently, the absence of uniformity in standardization and the use of a wide
array of indicators provide a challenge, resulting in the inability to compare various projects 42.

The absence of a comprehensive framework and cohesive policies that are in harmony with one
another is a substantial challenge inside our nation. The nation has delineated a range of
circulars, policies, and goals about the environment, sustainability, and renewable energy;
nevertheless, these initiatives lack interconnectivity. In contrast, the environmental objectives
delineate India's intention to augment the forested land by an annual increment of 1 million
hectares, enhance its renewable energy capacity by 30,000 Megawatts, and curtail emissions by a
range of 20 to 25 percent.43

A committee of sustainable finance experts submitted a report to the International Financial

Services Centers Authority (IFSCA) in GIFT City. The committee has put forth several
recommendations, including the adoption of sustainable green products, the issuance of
sovereign green bonds through the International Financial Services Centre (IFSC), the

42
The government declared a plan to add 50 GW of renewable energy capacity annually for the next 5 years to
achieve the target of 500 GW by 2030. (n.d.). Pib.gov.in. https://pib.gov.in/PressReleaseIframePage.aspx?
PRID=1913789 (last visited 1 Dec. 2023)
43
Majid, M. (2020). Renewable energy for sustainable development in India: current status, prospects, challenges,
employment, and investment opportunities. Energy, Sustainability and Society, 10(1), 1-36.

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development of innovative sustainable finance products, the establishment of a voluntary carbon
market and the promotion of green fintech.44 The issue of sovereign green bonds via the
International Financial Services Centre (IFSC) would serve to reinforce the credibility of the
green bond market. This, in turn, would result in more competitive offers, bigger volumes of
orders, enhanced price negotiation power, and a more discerning base of investors. 45
Furthermore, it is recommended that the Ministry of Finance (MOF) contemplate the facilitation
of sovereign masala bond issuances to be listed at the International Financial Services Centre
(IFSC). This measure would serve to expand the investor pool for India's sustainable transition
while mitigating exposure to currency risk.46 The voluntary carbon market facilitates the
opportunity for people, governments, non-governmental organizations (NGOs), and corporations
to engage in the voluntary acquisition of carbon credits as a means to counterbalance their
carbon-intensive activities.47

Developing nations must incorporate green finance into their commercial lending decisions
while considering the impact on the environment and balancing the demands of social
development and economic expansion. The goal-posts in question might include a variety of
objectives:

a. The objective is to enhance stakeholders' understanding of environmental vulnerabilities

and hazards, with a particular focus on market intermediaries.

b. The objective is to provide a universally recognized collection of green finance

terminology and metrics that may facilitate cross-country or cross-market comparisons.

c. The objective is to identify and cultivate environmentally sustainable financial products

and services that may be launched into the market.

44
Committee of Experts on Sustainable Finance submits report to IFSCA. (n.d.). Www.pib.gov.in. Retrieved
December 1, 2023, from https://www.pib.gov.in/PressReleasePage.aspx?PRID=1865273
45
Lindner, P., & Chung, K. (2023). Sovereign ESG Bond Issuance: A Guidance Note for Sovereign Debt Managers.
46
Shamil, M. M. M., Shaikh, J. M., Ho, P. L., & Krishnan, A. (2012). The Relationship between Corporate
Sustainability and Corporate Financial Performance: A Conceptual Review. In Proceedings of USM-AUT
International Conference 2012 Sustainable Economic Development: Policies and Strategies (Vol. 167, p. 401).
School of Social Sciences, Universiti Sains Malaysia.
47
Martellini, L., & Vallée, L. S. (2021). Measuring and managing ESG risks in sovereign bond portfolios and
implications for sovereign debt investing. The Journal of Portfolio Management, 47(9), 198-223.

27 | P a g e
 d. Developing measures for monitoring success is essential in any academic or research
setting.

e. Developing creative financing solutions to satisfy the requirements of sustainable,

environmentally friendly initiatives.

f. It is essential to enhance the capacity for evaluating environmental hazards and include
them in loan choices. Although there have been advancements in public awareness and
funding alternatives, more improvements are necessary.

Some of the major challenges could be:

● The elevated expenses associated with borrowing.

● Unsubstantiated assertions on adherence to environmental regulations.

● No one appropriate definition for 'green finance'

● There exists a discrepancy in maturation durations between long-term green investments

and the comparatively shorter-term objectives of investors.

● The concept of "green" in the context of green finance lacks clarity.

● There exists a discrepancy in maturity durations between short-term and long-term green

investments.

● The time horizon of savings and investors is typically short-term.

● The presence of ambiguity around government policy

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 ● There is a lack of comprehensive governmental support for the commercialization of

emerging technology.

● There exists a lack of comprehensive understanding of available financing solutions and a

dearth of technical proficiency inside corporate entities.

To sum up, this chapter has looked at the intricate realm of ESG disclosure and how it affects
corporate governance, sustainability, and investor relations. The sections that came before this
one provide an overview of the evolution of CSR, the ESG disclosure framework, and its
growing significance in relation to corporate excellence. The regulatory environment, including
pertinent laws and policies, has been examined to shed light on how ESG disclosure is changing
in India and how it fits into sustainable finance. The study has shown that ESG disclosure is a
strategic need for companies striving for sustainable practices, not only a legal necessity. It has
been shown that including ESG considerations in corporate governance improves transparency,
expedites decision-making, and strengthens stakeholder relationships. 48 Also, the link between
business results and ESG disclosure shows the real advantages companies get when they put
these things first. The talk has also highlighted how crucial it is to share ESG details. This helps
investors make better and smarter money choices.

48
The government declared a plan to add 50 GW of renewable energy capacity annually for the next 5 years to
achieve the target of 500 GW by 2030. (n.d.). Pib.gov.in. https://pib.gov.in/PressReleaseIframePage.aspx?
PRID=1913789 (last visited 1 Dec. 2023)

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BIBLIOGRAPHY

Statutes:

● The Companies Act, 2013

● Securities and Exchange Board of India (listing Obligations and Disclosure

Requirements) Regulations, 2015

● Business Responsibility and Sustainability Report

● Prevention of Money Laundering Act, 2002

● Prevention of Corruption Act, 1988

Books:

Matos P, ESG and Responsible Institutional Investing around the World: A Critical Review
(CFA Institute Research Foundation 2020)
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D’Orazio P, ‘The Politics of Climate Finance and Policy Initiatives to Promote Sustainable
Finance and Address ESG Issues’ [2023] Sustainable Finance and ESG 145

OECD, OECD Business and Finance Outlook 2020 (OECD Publishing 2020)

Outlast: How ESG Can Benefit Your Business (Harper Business, an imprint of HarperCollins
Publishers 2021)

Fisher P, Making the Financial System Sustainable (Cambridge University Press 2021)

Case Laws:

- Writ Petition no. 37487 of 2012 Satyam Computer Services Limited v. Directorate of
Enforcement, Government of India, Telangana High Court (Gross mismanagement of
shareholder's rights): Satyam Computers was respected within the Indian IT industry until
2009. But after that, there was an extraordinary drop. The whole scenario reveals that
administration and authority show revolve around sans morals and obligation which also
form strong pillars for ESG.

- Writ Petition no. 2743 of 2014 63, Moons Technologies v. Union of India, Bombay High
Court (NSEL Scam). The NSEL scam only happens to be the biggest of the multiple
scams that have hit the commodities markets. Poor regulation was one of the key reasons
for that to happen. It is cases like these that further dawns upon the need for ESG in
contemporary corporate scenario.

- Nestle Maggi Ban: These categories of claims, although did not involve violation of any
ESG norms, further strengthen the notion that ESG norms impute responsibility on food
companies risking public health standards for windfall profits.

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