ESG Compliance - Legalities of Environment, Social and Governance Norms for Startups

ESG Compliance - Legalities of Environment, Social and Governance Norms for Startups . Globally, unlisted entities have voluntarily begun disclosing their ESG Compliance. Investors and investment firms are increasingly insisting on ESG policies for decision-making and place greater weight on sustainable and committed companies. This article addresses legal, regulatory and future possibilities of compliance with Environmental, Social and Governance norms for companies at various stages of growth. 
Why ESG, when Corporate Social Responsibility (CSR) spending norms already exist in the Companies Act, 2013? 
While it is easy to confuse the mandatory financial commitment specified under the CSR norms in India, with ESG - there is a world of difference between the two, and definite advantages of committing to both. 
Internal spending vs External Impact - While CSR necessarily involves tying profitability to spending on an internally chosen social project, ESG measures actual steps taken by the company towards creating positive external impact in the environment, creating socially beneficial outcomes and improving governance indicators. 
While CSR may or may not create a strong impact due to involvement of third-parties, ESG is seen as a more reliable, direct and correlative criteria of measuring sustainability related risks and creating better outcomes in the longer run. 
Regulatory frameworks and Mandatory Compliance with ESG in India 
Background of ESG - In 2009, the Ministry of Corporate Affairs originally conceived the idea of Voluntary Guidelines on CSR. Twelve years later, SEBI issued a circular that introduced the Business Responsibility and Sustainability Report . In 2012, SEBI mandated that the top 100 listed companies file a Business Responsibility Report, which was later extended to top 500 listed companies. 
In 2022, SEBI announced that it became mandatory for top 1000 listed companies to file their Business Responsibility and Sustainability Report.  
Benefits of ESG Reporting

It raises corporate disclosure and transparency on environment and social indicators. It is in furtherance of the code of corporate governance and makes companies performance in social indicators, understandable by stakeholders.

It helps companies identify risks, and develop appropriate responses which also help in building corporate reputation and improving value for community.

It provides a metric of measurement of non-financial performance, opportunities, and threats, and give the direction to take steps in, for a better future.

Given its global outlook, ESG reporting helps access funds from a wider range of global investors looking for impact investment

Creates a data-driven metric to measure non-financial growth.

Indicative data points for ESG Parameters for your business in India 
Environmental Ratings Assessment 
While rating an issuer of securities or an entity in terms of environment, the following factors and their parameters could serve as good data points. 
Energy saving - assessing whether the entity has disclosed targets under the Perform, Achieve, Trade (PAT) schemes of Government of India, which is aimed at decarbonising energy by a providing a market for trading of energy certificates. These certificates are aimed to facilitate trading of certificates by heavy-energy industries (like iron, steel, hotels, paper, fertilisers, petroleum industry) on power trading exchanges like the India Energy Exchange and Power Exchange India Limited. It also includes assessing steps taken for renewable energy, measuring energy intensity, and energy consumption reduction. 
Water saving - assessing whether the entity has implemented a mechanism for Zero Liquid Discharge.  
Waste Management - Whether the entity is responsible for complying with Extended Producer Responsibility (under the Plastic Waste Management Rules, Hazardous Substances Rules etc) and if so, whether those have been complied with. Weather specific and standard laws for rating of waste management such as the Solid Waste Management Rules, Bio-medical Waste Management Rules, E-Waste Rules etc are being complied with? 
Air Emissions - Whether there is internal monitoring and compliance of India specific standards/laws/guidelines on ratings on air emissions (Zero Emissions, Continuous Emissions Monitoring Systems etc): ; whether there is compliance with guidelines on greenhouse gas emissions, such as the norms specified by State and Central Pollution Control Boards, National Action Plan on Climate Change, Environment Protection Act, Ozone Depletion Rules etc. 
Land Use and Biodiversity - whether the company has operations in or around ecologically sensitive areas, such as national parks, wetlands, Forest, coastal regulation zones, etc 
CSR - whether the amount spent on CSR as a percentage percentage of regulatory requirement has been spent on activities undertaken by trust and foundations, and whether the funds have actually been utilised by these entities. 
Social parameters
An ESG rating provider would likely look at one or more of the following points.

What is the level of job creation in smaller towns for inclusive development?

What is the percentage of input materials sourced from small suppliers, MSMEs, small producers and materials source locally from within India?

What is the percentage of employment by gender, segregated into parity between wages and salaries of each gender?

What is the level of job creation, infrastructure, conducive conditions for different differently abled associated with the company?

What are the healthcare benefits offered to employees?

What steps have been taken for training, skilling, development, addressing child and force, labour and human rights violations within the organisation?

Governance indicators
The following are some indicators of compliance, governance, related party transactions for a company being assessed under Governance norms of ESG:

Does the company have a Regulatory Technology or a Systems solutions for monitoring, tracing and evidencing its compliance?

What is the percentage of “against” votes among the non-promoter shareholders in appointment of independent directors?

What is the percentage of “against” votes amongst non-promoter shareholders on related party transactions?

What is the change in royalty in the last five years and if any increase the reasons there of

The percentage of related party transactions in the following functions of the company - purchases, sales, loans, advances, investments.

SEBI’s Circular on ESG Rating Providers 
In a master circular issued by SEBI on July 12, 2023, Sebi prescribed that ESG rating providers would be regulated under the Securities and
Exchange Board of India (Credit Rating Agencies) Regulations, 1999. 
Types of ESG Ratings and Scores 
Credit Rating Agency regulations define the environmental, social and governance ratings as the rating products that are marketed as opinions about an issue or a security, regarding its characteristics or exposure to ESG risk, governance, risk, social risk, climatic or environmental risk or impact on society,.these are issued using a defined ranking system of rating categories. 
The following ratings have to be provided:

ESG Rating : These should suitably incorporate:

Environmental, social and governance aspects that are contextual to the Indian market

They must be assigned in a way that it allows comparison with companies and other sectors, and thus the rating of the products must contain General ratings that are not sector specific but allow for a border cross-industry comparison

Transition or Parivartan Score    : India has committed to carbon emission intensity reduction to Net Zero by 2070. This parameter evaluates Indian corporate on an absolute yardstick that measures the velocity of investments towards this national goal of Net Zero Emissions. This Parivartan score is an exhibitor of the incremental changes that a company makes in its eventual transition to sustainability in its operations. This transition score would track changes in quantitative metrics, change in revenues from environmental or social services and products.

Combined Score - The combined score incorporates the above two - ESG Rating and Transition Rating. It is calculated as a combination of the two (not by simple addition, but by adopting a publicly disclosed rating methodology combining the two scores proportionally).

Core ESG Rating - The core ESG Rating provided by ESG Rating Platforms shall be based on third-party assured or audited data disclosed by the company. The core ESG rating may also contain some additional observations on data that may not be verified by third parties, in order to disclose unverified information to the investors and consumers, who may want to make a more informed choice about the company.

Core Transition or Parivartan Score - The core transition or Parivartan score measures the ability to the transition to net zero goals.

Core Combined Score - The core combined score incorporates Core ESG rating and Core Transition Ratings. The ESG Rating Provider grants this pursuant to the availability of Business and Sustainability Report (BRSR) Core.

Methodology of the ESG Rating

For clarity and consistency, the ESG ratings shall be provided on a scale of 0-100, where 100 denotes the maximum score

ESG Rating Providers can undertake or offer ESG rating of any product or issuer, as may be required by another financial sector regulator or authority, as specified by SEBI.

An ESG Rating Provider can offer only one of the following two products -

ESG Ratings or Certifications of Green Debt Securities

Audit of financial statements, assurance of sustainability disclosures

Business Model of ESG Rating Providers - The rating providers can adopt one of the two models:

Subscriber Pays Model: Here the rating provider derives its revenue from ESG Ratings from subscribers, which includes banks, insurance companies, pension funds or the rated company itself

Issuer Pays Model: Here, the rating provider gets its revenue for its services from the company being rated, by way of a written contractual agreement between such entity and the ERP.

For avoiding a conflict of interests, a hybrid model is disallowed by SEBI. Thus, the rating agency must choose one of the models and not a combination of the two.

Minimum disclosures required in a ESG Report:

Current ESG score

Change in rating from previous year(s)

Last review date

Summary of key drivers, including qualitative data (inclusive of any controversies and their impact) and quantitative factors considered for arriving at overall ESG rating.

Pillar-wise scores on Environmental, Social and Governance indicators and the weights assigned to each pillar.

Explanation of clarifying unmanaged risks, performance against risks

Summary of link to methodology

Compliance Guidelines and Record keeping by a Rating Agency

Framing a compensation arrangement with the company being rated, and the subscribers who may be users of the conclusions of the ESG Report

Framing a policy for review or appeal by the Issuer against the ratings assigned

Guidelines of “Non-cooperation”, where the Rating Agency follows an Issuer-pays model with the company being rated.

Confidentiality policy

Any changes in rating process must be sufficiently disclosed on the rating provider’s website, and a reference or hyperlink with explanations of the changes

Record keeping must be done of the following:

Factors underlying ESG ratings and sensitivity of rating to the factors

Minutes of meetings with the issuer’s management

Summary of discussions and correspondences with issuer, their management, auditors

Rationale for material differences between the ESG rating implied by the model and the rating actually assigned

For listed companies, such records are to be maintained at all times. However, for withdrawal of an ESG rating, records must be maintained for a period of 5 years from date of withdrawal.

For listed securities, such records are to be maintained until 5 years from the date of maturity of such securities. However, upon withdrawal of ESG rating, the records must be maintained till a period of 5 years from the date of withdrawal.

Annual review of decisions and assessment of changes in ratings

A high standard of fairness and integrity must be maintained. Any act of omission or commission in contravention of clauses 12 and 23 of the Code of Conduct, specified under Seventh Schedule of the CRA Regulations, can result in violation of SEBI Act, 1992 (specifically Section 12A) and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

What happens when an entity under assessment refuses to comply or supply information?
Regulation 28M provides that in case the issuer being assessed refuses to cooperate with information needed for the ESG rating, the Rating Provider would review the ESG rating on the basis of the best available information. 
In case of non-cooperation by the issuer (such as not providing information required for rating, non payment of fees etc), the rating provider would review the ESG rating on an ongoing basis throughout the rating’s lifetime, on the basis of best available information.  However, the ESG rating symbol must be suffixed by the phrase “ISSUER NOT COOPERATING” and shall be explained sufficiently. 
On what grounds can the ratings be withdrawn? 
ESG ratings can be withdrawn only in the following conditions:

The rated entity or the issuer whose securities are rated, is wound up, merged, amalgamated with another company

Withdrawal is also allowed on part of the Rating Provider on grounds documented in its policy which must be adequately disclosed on their website

If the withdrawal relates with entities that are listed, or proposed to be listed on a recognised stock exchange, the rating rationale and reasons for withdrawal must be mentioned

Internal Audit Requirements 
As per Regulation 22 of the CRA Regulations, an internal audit must be undertaken in the following manner: 
It shall be conducted on a yearly basis, by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the ERP.
It should cover all aspects of ERP operations and procedures, including investor grievance redressal mechanism, compliance with the requirements stipulated in the SEBl Act, Rules and Regulations made thereunder, and guidelines issued by SEBI from time to time.
The internal audit report should contain the following information:

The methodology adopted, deficiencies observed, and consideration of response of the management on the deficiencies.

A summary of operations and of the audit, covering the size of operations, number of transactions audited and the number of instances where violations / deviations were observed while making observations on the compliance of any regulatory requirement.

The adequacy of systems adopted by the ERP for compliance with the requirements of regulations and guidelines issued by SEBI and investor grievance redressal.

Directors’ Duties and ESG Compliance 
In several cases decided by the Hon’ble Supreme Court of India, director’s responsibility towards protection of environment and their fiduciary duty of safeguarding against environmental pollution and corporate hazards have been upheld. (Union Carbide Case, ShriRam Foods and Fertilisers, MK Ranjit Singh case etc). 
The following statutory provisions and legal principles also indicate the role of directors in ensuring compliance with environmental and social regulations:

Under the SEBI’s LODR Regulations, Board responsibility includes reviewing and guiding the risk policy of the company and ensuring mitigating mechanisms of risks. This, by extension, would include neglect of environmental impact by a company or failure to comply with rules on gender-pay-parity

Section 166(2) of the Companies Act, 2013 stipulates that directors shall act in good faith and in the best interests of the company, employees and shareholders, community and the environment. This makes environmental and social responsibilities a key consideration for directorial actions.

Class action suits and Public Interest - the NCLT, (in Union of India, MCA vs IL&FS Ltd, 2018) held that where directors promote profits at the cost of environmental conservation, shareholders would arguably have the right under section 241 of the Companies Act to approach the NCLT and contend that the company’s affairs are being conducted in a manner prejudicial to public interest.

Various environmental legislations in India (Air Act, Environment Protection Act, 1986 and the rules thereunder) provide for corporate responsibility of compliance with regulations. The penal provisions under these legislations also include imposing penalties on key managerial personnel.

With RBI increasing its focus on green impact, green loans, investments for climate-related financial risks, there is no doubt that ESG reporting adoption would only increase.

Globally, unlisted entities have voluntarily begun disclosing their ESG Compliance. Investors and investment firms are increasingly insisting on ESG policies for decision-making and place greater weight on sustainable and committed companies. This article addresses legal, regulatory and future possibilities of compliance with Environmental, Social and Governance norms for companies at various stages of growth.

Why ESG, when Corporate Social Responsibility (CSR) spending norms already exist in the Companies Act, 2013?

While it is easy to confuse the mandatory financial commitment specified under the CSR norms in India, with ESG - there is a world of difference between the two, and definite advantages of committing to both.

Internal spending vs External Impact - While CSR necessarily involves tying profitability to spending on an internally chosen social project, ESG measures actual steps taken by the company towards creating positive external impact in the environment, creating socially beneficial outcomes and improving governance indicators.

While CSR may or may not create a strong impact due to involvement of third-parties, ESG is seen as a more reliable, direct and correlative criteria of measuring sustainability related risks and creating better outcomes in the longer run.

Regulatory frameworks and Mandatory Compliance with ESG in India

Background of ESG - In 2009, the Ministry of Corporate Affairs originally conceived the idea of Voluntary Guidelines on CSR. Twelve years later, SEBI issued a circular that introduced the Business Responsibility and Sustainability Report . In 2012, SEBI mandated that the top 100 listed companies file a Business Responsibility Report, which was later extended to top 500 listed companies.

In 2022, SEBI announced that it became mandatory for top 1000 listed companies to file their Business Responsibility and Sustainability Report.

Benefits of ESG Reporting

It raises corporate disclosure and transparency on environment and social indicators. It is in furtherance of the code of corporate governance and makes companies performance in social indicators, understandable by stakeholders.
It helps companies identify risks, and develop appropriate responses which also help in building corporate reputation and improving value for community.
It provides a metric of measurement of non-financial performance, opportunities, and threats, and give the direction to take steps in, for a better future.
Given its global outlook, ESG reporting helps access funds from a wider range of global investors looking for impact investment
Creates a data-driven metric to measure non-financial growth.

Indicative data points for ESG Parameters for your business in India

Environmental Ratings Assessment

While rating an issuer of securities or an entity in terms of environment, the following factors and their parameters could serve as good data points.

Energy saving - assessing whether the entity has disclosed targets under the Perform, Achieve, Trade (PAT) schemes of Government of India, which is aimed at decarbonising energy by a providing a market for trading of energy certificates. These certificates are aimed to facilitate trading of certificates by heavy-energy industries (like iron, steel, hotels, paper, fertilisers, petroleum industry) on power trading exchanges like the India Energy Exchange and Power Exchange India Limited. It also includes assessing steps taken for renewable energy, measuring energy intensity, and energy consumption reduction.

Water saving - assessing whether the entity has implemented a mechanism for Zero Liquid Discharge.

Waste Management - Whether the entity is responsible for complying with Extended Producer Responsibility (under the Plastic Waste Management Rules, Hazardous Substances Rules etc) and if so, whether those have been complied with. Weather specific and standard laws for rating of waste management such as the Solid Waste Management Rules, Bio-medical Waste Management Rules, E-Waste Rules etc are being complied with?

Air Emissions - Whether there is internal monitoring and compliance of India specific standards/laws/guidelines on ratings on air emissions (Zero Emissions, Continuous Emissions Monitoring Systems etc): ; whether there is compliance with guidelines on greenhouse gas emissions, such as the norms specified by State and Central Pollution Control Boards, National Action Plan on Climate Change, Environment Protection Act, Ozone Depletion Rules etc.

Land Use and Biodiversity - whether the company has operations in or around ecologically sensitive areas, such as national parks, wetlands, Forest, coastal regulation zones, etc

CSR - whether the amount spent on CSR as a percentage percentage of regulatory requirement has been spent on activities undertaken by trust and foundations, and whether the funds have actually been utilised by these entities.

Social parameters

An ESG rating provider would likely look at one or more of the following points.

What is the level of job creation in smaller towns for inclusive development?
What is the percentage of input materials sourced from small suppliers, MSMEs, small producers and materials source locally from within India?
What is the percentage of employment by gender, segregated into parity between wages and salaries of each gender?
What is the level of job creation, infrastructure, conducive conditions for different differently abled associated with the company?
What are the healthcare benefits offered to employees?
What steps have been taken for training, skilling, development, addressing child and force, labour and human rights violations within the organisation?

Governance indicators

The following are some indicators of compliance, governance, related party transactions for a company being assessed under Governance norms of ESG:

Does the company have a Regulatory Technology or a Systems solutions for monitoring, tracing and evidencing its compliance?
What is the percentage of “against” votes among the non-promoter shareholders in appointment of independent directors?
What is the percentage of “against” votes amongst non-promoter shareholders on related party transactions?
What is the change in royalty in the last five years and if any increase the reasons there of
The percentage of related party transactions in the following functions of the company - purchases, sales, loans, advances, investments.

SEBI’s Circular on ESG Rating Providers

In a master circular issued by SEBI on July 12, 2023, Sebi prescribed that ESG rating providers would be regulated under the Securities and

Exchange Board of India (Credit Rating Agencies) Regulations, 1999.

Types of ESG Ratings and Scores

Credit Rating Agency regulations define the environmental, social and governance ratings as the rating products that are marketed as opinions about an issue or a security, regarding its characteristics or exposure to ESG risk, governance, risk, social risk, climatic or environmental risk or impact on society,.these are issued using a defined ranking system of rating categories.

The following ratings have to be provided:

ESG Rating : These should suitably incorporate:
Environmental, social and governance aspects that are contextual to the Indian market
They must be assigned in a way that it allows comparison with companies and other sectors, and thus the rating of the products must contain General ratings that are not sector specific but allow for a border cross-industry comparison
Transition or Parivartan Score : India has committed to carbon emission intensity reduction to Net Zero by 2070. This parameter evaluates Indian corporate on an absolute yardstick that measures the velocity of investments towards this national goal of Net Zero Emissions. This Parivartan score is an exhibitor of the incremental changes that a company makes in its eventual transition to sustainability in its operations. This transition score would track changes in quantitative metrics, change in revenues from environmental or social services and products.
Combined Score - The combined score incorporates the above two - ESG Rating and Transition Rating. It is calculated as a combination of the two (not by simple addition, but by adopting a publicly disclosed rating methodology combining the two scores proportionally).
Core ESG Rating - The core ESG Rating provided by ESG Rating Platforms shall be based on third-party assured or audited data disclosed by the company. The core ESG rating may also contain some additional observations on data that may not be verified by third parties, in order to disclose unverified information to the investors and consumers, who may want to make a more informed choice about the company.
Core Transition or Parivartan Score - The core transition or Parivartan score measures the ability to the transition to net zero goals.
Core Combined Score - The core combined score incorporates Core ESG rating and Core Transition Ratings. The ESG Rating Provider grants this pursuant to the availability of Business and Sustainability Report (BRSR) Core.

Methodology of the ESG Rating

For clarity and consistency, the ESG ratings shall be provided on a scale of 0-100, where 100 denotes the maximum score
ESG Rating Providers can undertake or offer ESG rating of any product or issuer, as may be required by another financial sector regulator or authority, as specified by SEBI.
An ESG Rating Provider can offer only one of the following two products -

ESG Ratings or Certifications of Green Debt Securities
Audit of financial statements, assurance of sustainability disclosures

Business Model of ESG Rating Providers - The rating providers can adopt one of the two models:

Subscriber Pays Model: Here the rating provider derives its revenue from ESG Ratings from subscribers, which includes banks, insurance companies, pension funds or the rated company itself
Issuer Pays Model: Here, the rating provider gets its revenue for its services from the company being rated, by way of a written contractual agreement between such entity and the ERP.
For avoiding a conflict of interests, a hybrid model is disallowed by SEBI. Thus, the rating agency must choose one of the models and not a combination of the two.

Minimum disclosures required in a ESG Report:

Current ESG score
Change in rating from previous year(s)
Last review date
Summary of key drivers, including qualitative data (inclusive of any controversies and their impact) and quantitative factors considered for arriving at overall ESG rating.
Pillar-wise scores on Environmental, Social and Governance indicators and the weights assigned to each pillar.
Explanation of clarifying unmanaged risks, performance against risks
Summary of link to methodology

Compliance Guidelines and Record keeping by a Rating Agency

Framing a compensation arrangement with the company being rated, and the subscribers who may be users of the conclusions of the ESG Report
Framing a policy for review or appeal by the Issuer against the ratings assigned
Guidelines of “Non-cooperation”, where the Rating Agency follows an Issuer-pays model with the company being rated.
Confidentiality policy
Any changes in rating process must be sufficiently disclosed on the rating provider’s website, and a reference or hyperlink with explanations of the changes
Record keeping must be done of the following:

Factors underlying ESG ratings and sensitivity of rating to the factors
Minutes of meetings with the issuer’s management
Summary of discussions and correspondences with issuer, their management, auditors
Rationale for material differences between the ESG rating implied by the model and the rating actually assigned
For listed companies, such records are to be maintained at all times. However, for withdrawal of an ESG rating, records must be maintained for a period of 5 years from date of withdrawal.
For listed securities, such records are to be maintained until 5 years from the date of maturity of such securities. However, upon withdrawal of ESG rating, the records must be maintained till a period of 5 years from the date of withdrawal.
Annual review of decisions and assessment of changes in ratings

A high standard of fairness and integrity must be maintained. Any act of omission or commission in contravention of clauses 12 and 23 of the Code of Conduct, specified under Seventh Schedule of the CRA Regulations, can result in violation of SEBI Act, 1992 (specifically Section 12A) and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

What happens when an entity under assessment refuses to comply or supply information?

Regulation 28M provides that in case the issuer being assessed refuses to cooperate with information needed for the ESG rating, the Rating Provider would review the ESG rating on the basis of the best available information.

In case of non-cooperation by the issuer (such as not providing information required for rating, non payment of fees etc), the rating provider would review the ESG rating on an ongoing basis throughout the rating’s lifetime, on the basis of best available information. However, the ESG rating symbol must be suffixed by the phrase “ISSUER NOT COOPERATING” and shall be explained sufficiently.

On what grounds can the ratings be withdrawn?

ESG ratings can be withdrawn only in the following conditions:

The rated entity or the issuer whose securities are rated, is wound up, merged, amalgamated with another company
Withdrawal is also allowed on part of the Rating Provider on grounds documented in its policy which must be adequately disclosed on their website
If the withdrawal relates with entities that are listed, or proposed to be listed on a recognised stock exchange, the rating rationale and reasons for withdrawal must be mentioned

Internal Audit Requirements

As per Regulation 22 of the CRA Regulations, an internal audit must be undertaken in the following manner:

It shall be conducted on a yearly basis, by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the ERP.

It should cover all aspects of ERP operations and procedures, including investor grievance redressal mechanism, compliance with the requirements stipulated in the SEBl Act, Rules and Regulations made thereunder, and guidelines issued by SEBI from time to time.

The internal audit report should contain the following information:

The methodology adopted, deficiencies observed, and consideration of response of the management on the deficiencies.
A summary of operations and of the audit, covering the size of operations, number of transactions audited and the number of instances where violations / deviations were observed while making observations on the compliance of any regulatory requirement.
The adequacy of systems adopted by the ERP for compliance with the requirements of regulations and guidelines issued by SEBI and investor grievance redressal.

Directors’ Duties and ESG Compliance

In several cases decided by the Hon’ble Supreme Court of India, director’s responsibility towards protection of environment and their fiduciary duty of safeguarding against environmental pollution and corporate hazards have been upheld. (Union Carbide Case, ShriRam Foods and Fertilisers, MK Ranjit Singh case etc).

The following statutory provisions and legal principles also indicate the role of directors in ensuring compliance with environmental and social regulations:

Under the SEBI’s LODR Regulations, Board responsibility includes reviewing and guiding the risk policy of the company and ensuring mitigating mechanisms of risks. This, by extension, would include neglect of environmental impact by a company or failure to comply with rules on gender-pay-parity
Section 166(2) of the Companies Act, 2013 stipulates that directors shall act in good faith and in the best interests of the company, employees and shareholders, community and the environment. This makes environmental and social responsibilities a key consideration for directorial actions.
Class action suits and Public Interest - the NCLT, (in Union of India, MCA vs IL&FS Ltd, 2018) held that where directors promote profits at the cost of environmental conservation, shareholders would arguably have the right under section 241 of the Companies Act to approach the NCLT and contend that the company’s affairs are being conducted in a manner prejudicial to public interest.
Various environmental legislations in India (Air Act, Environment Protection Act, 1986 and the rules thereunder) provide for corporate responsibility of compliance with regulations. The penal provisions under these legislations also include imposing penalties on key managerial personnel.

With RBI increasing its focus on green impact, green loans, investments for climate-related financial risks, there is no doubt that ESG reporting adoption would only increase.