Rostrum’s Law Review | ISSN: 2321-3787

ESG: COMPETING BY CARING Are we Preserving Nature or Greenwashing in the name of Sustainability?

ESG is a process for analyzing the organization’s commitment in qualitative and quantitative terms based on its positive or negative impact on the environmental, social, and governance (ESG as its acronym) parameters. It uses specific parameters and metrics that are related to the intangible assets of an organization’s business which are applied to tabulate and make a scorecard with a specific score rating to reflect the organization’s commitment towards the three essential parameters. The world financial markets have been running on the credibility of an individual, person, institution, organization and so on and so forth and ESG is a medium to create a corporate credit rating for investors reflecting its responsibility (ABILITY TO RESPOND) in the time of global crisis.
It has been in practice ever since there have been humanitarian reforms from the prevention of investments in labour by enslaving communities in the decades of 1960s and 1970s to the whole apartheid movement to documenting the adverse impacts of the use of pesticides and insecticides (DDT) in agriculture, to shifting from permaculture to monoculture for creating cash crops and making food a mode of creating capitalistic markets and nations.
The Brundtland Report focussed on decoupling environmental degradation for the economic prosperity of a nation. In the process of decoupling the two sustainable development was defined as the development that meets the needs of the present without compromising the ability of the future generations to meet their own needs .
ESG basically came into existence to balance the social costs of economic and financial globalization and its implications for our sustainability. It was inherently a step towards reversing the adverse effects of globalization, privatization, and liberalization at the cost of human and resource exploitation as factors of production and reaching a point where a corporate perpetual life was prioritized over a natural being’s life for economic benefit, profits and domination by power.
The term ESG came into existence in the United Nations Finance initiative by a staunch ecologist James Gifford during his internship when the structure of the new sector of finance was under development with the acronym ESG (Environment, Social and Governance). Specifically, at that time, the whole market of securities and bonds was under development and ESG became a strong base in the evolution of the financial markets understanding the new concerns of environmental crisis and warnings being all over the place.
The Paris Agreement, of 2015, The Brundtland Report in 1987, United Nations Conference on Environment and Development of 1992 (Called the EARTH SUMMIT) are a few of the international treaties and conferences that were an alarm to the world on sustainable development and being cautious while using the earth’s resources.
The roadmap of ESG becoming a priority started decades ago but the essential milestones are mentioned hereunder,
a) In 1990 the Domini 400 Social Index focussed on companies prioritizing social and environmental responsibility demonstrating that investing in socially responsible issues can deliver strong financial returns. It is now called the MSCI KLD 400 Social Index .
b) In the year 1992, the United Nations came up with the UN Framework Convention on Climate Change , a treaty signed by a group of 154 nations to mitigate dangerous human interference with the climate systems. The Conference of the Parties (COP) was launched as an annual meeting of all its members to discuss the actions taken and revise the goals.
c) In 1995 the first sustainable investment inventory in the US was held based on the Social Investment Forum Foundation presently known as US SIF Foundation which grew in size from $639 billion in 2020 to $35.3 trillion in sustainable assets worldwide .
d) The Kyoto Protocol was adopted in the year 1997 and was in effect from 2005 with an agreement that was specific to greenhouse gases and its reduction targets which was ratified by 192 nations and 36 nations signed up for the first commitment period. However, 9 countries out of those 36 funded the climate reduction programs in other countries because they went over their targets. Sadly, the two major capitalist economies were not a part of the Kyoto Protocol.
e) In 1997 the Global Reporting Initiative was launched and addressed various concerns that were related to the environment addressed social and governance issues broadly and provided guidance to ratify the first global standards for sustainability reporting.
f) In the year 2000 the United Nations Global Compact established principles across various segments and diverse areas of human rights like labour, environmental crisis, corruption, etc. Over 170 countries took part in this compact. The objective was primarily to initiate dialogue-based discussions and negotiations over such important issues globally.
g) In 2000, the Carbon Disclosure Project was founded by Paul Dickinson to organize and empower large investors to ask companies to report their climate performance and ways to mitigate climate risks and GHGs. The project helped the task force on climate-related financial disclosures to reach out to more companies and by 2021 companies with 64% of market capitalization responded with climate disclosures.
h) In 2004, the first report on “WHO CARES WINS ” with the acronym ESG prescribed numerous recommendations for the integration of ESG (Environmental, Social, and Governance) issues in data analysis, asset management, and securities brokerages in the developing financial markets. It was proposed in the report that greater inclusion of ESG factors in investment decisions and companies’ portfolios will impact the companies positively and will contribute to a more stable and predictable market while ensuring sustainability and protection of the environment.
i) In 2005, the London law firm with the support from United Nations published the Freshfields Report , “A legal framework for impact: Sustainability impact in investor decision making”, which suggested that the financial trustees and investors should include environmental and social considerations in the company’s data analysis and the same proposal has been refined and developed over the years into Investing for Sustainability Impact (IFSI).
j) In the year 2006, a group of 70 investment and environment experts with the United Nations published Principles for Responsible Investments which were principles advocating institutional investors incorporate ESG (Environment Social, and Governance) considerations into their decisions. Its objective was to call for investors and companies to include ESG issues, become active owners and take responsibility for their immediate environment and the impact of the business on the environment, seek appropriate disclosures and promote sustainable supply chains, enhance effectiveness in addressing the ESG issues and reports on activities and progress.
k) In the year 2007, the Climate Disclosure Standard Board was established where large organizations working on climate issues came together and created a new reporting framework elaborating on the risks and opportunities of climate change on the functioning and operations of an organization and considerations and implications of irresponsible operations on food security, water security, and forest risks. The report provides a framework to harmonize reporting on GHG and Natural capital and supports efforts to share data structuring using extensible business reporting language in conjunction with climate change reporting frameworks .
l) In the year 2011, the accounting standards for sustainability were introduced by Jean Rogers with the intent to create a list of meaningful accounting standards that accurately and honestly reflect an organization’s impact due to its operations and supply chains on ESG factors in any specific industry. The aim of developing these standards was to make sure that these standards provide consistency in reporting on the inherent risks and future predictable risks not being mitigated and the opportunities of meeting sustainability goals (Environmental and Corporate) that traditional accounting metrics bring to value investment decisions. Accordingly, this group developed standards for 77 industries across 11 sectors. One example of the Energy Industry is that while we are all witnessing and are a part of the green transition towards sustainable energy/ green energy/ renewable energy/ shift from hydrocarbons to RE, the companies would have to account for the environmental impact of mining activities that produce their equipment. Are the supply chains of any organization doing business for profits green or are all companies and organizations doing their ESG reporting as an isolated entity not having any impact or having little impact on the environment?
m) In 2015 the United Nations Sustainable Development Goals (SDGs) were formulated with 17 Goals that were further clarified into 169 specific targets and 232 unique indicators of progress and some of the issues covered under them are poverty, food security, health, equality, clean energy, work, infrastructure, sustainability, climate, oceans, justice, ecosystems, partnership, etc .
n) In 2015 the task force on climate-related financial disclosures was also formed with the Financial Stability Board. It was an industry consortium to make recommendations on various risks and is currently working on standards for reporting climate-related disclosures for banks, businesses, and investors and benchmarking the potential impact of climate risk on a company’s bottom line.
o) In 2016 a workforce disclosure initiative was taken up with Share Action, a charitable organization that supported responsible investment. The objective of the program was to increase the value and quality of data on the Health Safety and Environment (HSE) of an organization, workforce health, safety, and risk forecasting, mitigation, and management metrics. There are over 68 (Sixty-eight) institutional investors/companies/banks that currently support the program with more than $10 trillion in assets under their management.
p) In 2017, the Compact for Responsive and Responsible Leadership was signed by more than 140 Chief Executive Officers at the World Economic Forum meeting in Davos, Switzerland with a commitment to collaborate on the UN’s Sustainable Development Goals (SDGs) to benefit all and create and maintain a balance between corporate sustainability and environmental sustainability. It is working with the belief that society is best served by corporations that have aligned their goals to serve the long-term goals of society.
q) In 2017 the State Street Global Advisors and Board diversity issues of internal governance within the corporations/ MNCs were highlighted and Asset management firm State Street Global Advisors, in conjunction with the installation of its “Fearless Girl” statue on Wall Street, directed 600 companies in the United States, United Kingdom, and Australia that it would vote against the Board of Directors and the top management that they have no female directors or candidates. Within a couple of months, 42 companies committed to increasing diversity, and seven of them added women board members. Global Advisors later voted against 400 companies that failed to initiate diversity efforts. These are internal governance issues that are still prevalent across many industries even today.
r) In 2019, the Davos Manifesto 2020, the World Economic Forum published a set of principles to ensure operations and functions that are ethical and guide companies through the Fourth Industrial Revolution. The document clearly expressed the need for companies to comply with the need to serve employees, customers, suppliers, stakeholders, local communities, and society in the most beneficial and balanced manner. Emphasis was also laid on companies treating people with dignity and respect, integrating human rights into the supply chain, valuing each life for being, paying their fair share of taxes, and achieving ESG objectives.
s) In 2020 the COVID-19 pandemic took over the world and suspended all work cultures and economies to work remotely as it was an unseen danger that had toppled the world economy and the well-being of individuals, businesses, and societies was at stake. Meantime, remote work for more time also made us realize that environmental disasters had more time including extreme heat, forest fires, floods, and hurricanes followed by wars between nations.
t) In the year 2020, the World Economic Forum with the Big Four (BIG4) accounting/consultancy firms released a whitepaper. It was introduced with the aim of standardizing metrics for companies reporting on their ESG progress. These metrics helped the companies align the reporting on ESG indicators with progress toward the 17 SDGs given by the United Nations. Since the release corporates/companies have committed to implementing them and following the metrics. However, the question still remains on the sustainability of the environment despite ensuring corporate sustainability in this phase of environmental and climate crisis and climate emergency. The question still remains as to whether the supply chains yet not fit within the ESG moulds.
u) In 2021, the European Union in its EU Sustainable Finance Disclosure Regulations specifically imposed requirements on describing funds with specific sustainable investment objectives to promote environmental and social characteristics and those that were non-sustainable for the environment and the corporates. The objective is to report by the end of 2023, funds that promote sustainability, protect it natural water resources, transition to a sustainable circular economy, control and reduce pollution, and restore biodiversity .
v) In 2023, the European Union Corporate Sustainability Reporting Directive specified that all companies operating within their boundaries are mandated to make corporate sustainability disclosures. The disclosures should be in relation to their alignment with a European Union Environmental, social, and governance taxonomy and the data for analysis should be for sustainability and environment and social matters, human rights, anti-corruption, and diversity .
w) In 2023, Environment, Sustainability, and governance also became a part of the United States political discussions wherein, the U.S. Congress by a joint resolution passed a final rule that was issued by their Department of Labor in 2022 permitting the retirement fund managers to consider ESG metrics in investment decisions. President Biden cast his Vote and vetoed the measure . Since then, an ideological battle has unfolded and ESG investments are being considered a gamble on better returns from consciously running organizations doing ESG investments that take advantage of the Inflation Reduction Act and climate-related incentives.
x) 2023 and Ahead from the History of ESG gives hope towards the sector rapidly evolving and its scope if it is as effective on the ground as is being made on paper and scorecard compliances. It is clear that to manage the growing number of sectors and requirements with the increase in metrics that were a few years ago a voluntary disclosure but are now a mandate, the Boards will have to start strategizing their ESG compliances for better investments and also strategize how to use digital transformation and machine learning with algorithms and invest in automation of the ESG data and its effects and implications. As of now, the reliability, efficiency, and trust with on-ground operations bring about environmental sustainability and fight the climate crisis the globe is facing.
The demand for ESG (Economic, Social, and Governance) Investing has been on a constant rise since the term was recognized by the UN. This is also because the stakeholders are being affected and are becoming more aware of the Environment, Social, and Governance (ESG) issues such as climate crisis, food crisis, water crisis, employment opportunities, energy-based geopolitical unrest, and human and resource exploitation, and long-term values in businesses and their investments.
In the year 1971, the United Methodist Ministers who opposed the war in Vietnam created a fund known as the Pax World Fund which is in recorded history the first mutual fund in the United States that was factored on the two factors of ESG i.e., Social and Environment and took these two criteria into investment decisions. Further evolution in the finance segment came up with funds in pension schemes and employee-employer, worker-investor interests that helped the healthcare and housing sectors to develop and grow. However, for a couple of decades, these were random ideas of investors and the interest of the stakeholders being general public that gave rise to various kinds of funds unless the concept of ESG came into existence through rules and regulations for the protection of the environment, social and governance practices.
ESG has evolved over time and now focuses on various issues related to environmental, social, and corporate governance practices. An ESG report/program/scorecard documents a company’s impact on the environment (internal and external) and on different stakeholders all across the supply chains as well as its approach to governance (corporate governance and governance extending in internal and external affairs) and its impact on the society; it also assesses potential business risks and opportunities in each of the three areas for the society and the investor at a micro and macro level. Here’s a breakdown of the key ESG factors to consider as part of corporate initiatives by way of various ESG guidelines, Regulatory compliances, rules and regulations, and a significant requirement for investments in time and money due to various adoption agreements, timelines, and compliance issues and impact of the organization on the environment and society and its contribution towards the upliftment of the society.
When we talk about the environment it has a very wide scope from the organisation’s working and operational environment with specific targets to the external environment impacting the whole community directly or indirectly. Some of the factors are being stated for a better understanding of the reader like energy usage and efficiency, climate change strategies adopted and applied by the companies, energy consumption, waste reduction, and recycling; preventing biodiversity loss and reviving biodiversity, water usage; greenhouse gas emissions and overall the organization’s carbon footprint and ways to move towards carbon neutrality, prevention of water pollution; deforestation and efforts towards afforestation, restoration of green areas and adaptation to climate change.
The factors of ESG that encompass SOCIAL are related to its internal and external functioning and operations. Its internal working environment and laws that regulate the treatment of employees, how the supply chain workers are treated, and whether fair pay and living wages for all employees for equal work, equal employment opportunities for all, health safety and environment rules, engagement of customers and stakeholders, and groups of people affected by it directly or indirectly. Some examples to report SOCIAL in the ESG include diversity, equity, and inclusion (DEI) programs; fair and equitable interaction and dealings with customers and suppliers; responsible resourcing and supply chains; responsible and contributing engagement with stakeholders and community; charitable activities and donations; and social welfare, human rights and sustainable development advocacy workshops and culture.
The word governance comes from corporate governance which is the internal governance of an organization and its impact on the internal and the external environment and all stakeholders directly or indirectly. This includes the internal management and operational practices, effective rules and regulations applicable within an organization, internal and external policies, and controls that govern how a company operates and transforms with the needs of the system. Some examples include the working, appointment, and composition of employees and directors, how risk is analyzed and mitigated, compensations for all levels of employees from the board of directors to the cleaning staff; how financial transparency is maintained with accuracy, effectiveness and timely updates in line with the regulatory compliances; application of data privacy policies and non-disclosure agreements; ethical business conduct and practices; and how rules on whistleblowing, corruption, bribery, lifting of the corporate veil, conflicts of interest, and political lobbying are applied and also ensured that the Regulators can work independently without any pressures or biases.
Uncounted generations from time immemorial have been sustained and satisfied by Mother Earth in providing all the natural resources and assets be it essentials for survival or for utilizing and exploiting in the name of development and growth. To strike a perfect equilibrium to harness the available natural resources and develop non-polluting energy resources, the entire world is required to be seen as one unit, a global village to ensure sustainability and sustainable development, the need is to minimize greed so that our upcoming younger generations inherit at least what we have or if possible, a better managed and sustainable mother earth.
In the last few decades, we have had legal development that was curative, i.e., once the problem has occurred the law is made. Now with the help of AI, Algorithms, and technological development, we can be prepared with a forecasting model to analyze the previous trend of success and failure and find the risks involved. With the climate crisis and natural calamities accompanied by man-made calamities /disasters (wars), we need to move forward with the understanding that though risks are not illegal, every risk not mitigated or every non-compliance against the Regulations in force or policies in force has an implication with must legal consequences and penalties.
The aim is to present to the reader and share the researcher’s opinion to ensure that every demographic sector can work towards a sustainable future with the help of nature-based solutions to ensure the essentials are secure.
As the world continues to strive towards a sustainable future, fighting essential crises like water, food, and energy, the need for action and transformative and determined leadership accompanied by teams of professional experts conscious to execute on the ground is the need of the hour. With the transformation in technology and innovations abound, the question that needs to be dealt with at the policy-making level is ‘How can institutions, communities, societies, and businesses adopt solutions to make a meaningful change and enforce compassionate action?
The author thinks that it is also necessary that we analyze and deal with the (ESG) Environment, Social, and Governance Regulations coming up across the world in the most resilient way and base it on a practical and reformative approach when it comes to on-ground compliances and results. Its applicability in India needs to be based on a socialistic setup, its impact implication analysis with preparedness and Regulation in consonance with the vision of sustainability. The issues that the world faces are whether we can come to a level of commitment by corporate involvement, regulatory mechanisms, and government-led reforms that the efforts that companies claim of putting in towards the environment are happening. Is there any regulator checking the development based on the percentage increase in green cover per annum? Has there been a reduction in GHG emissions industry-wise, company-wise, nation-wise, and globally if all data is collected and analysed? Is growing their businesses and developing their infrastructure still a privilege only of the developed and economically strong nations at the cost of underdeveloped nations sustaining the ecology and environment?
The sustainability in ESG poses a major question regarding its applicability to Mother Earth and her sustainability or corporate sustainability. How is ESG compliance regulated and investigated most importantly, while it is still in its developing phase it has already become a mandate for financial institutions providing loans for setting up green industries.
Is it a model for debt creation in the name of environmental sustainability and governance? Is it under governance being implemented at the Central level or the State level? How is governance ensured or is it the internal governance of a company that is filing the ESG reports based on the data they have evaluated for their own company? Are the principles of ESG the same for all industries or changes from industry to industry and company to company? It is of utmost importance to take due care of prevention of green eye wash from corporates without any development on the ground creating food and climate crisis as it is a long-ignored process and not an emergency to avoid liability and accountability of those responsible for such crisis. All sustainability models need expert analysis with horizontal and vertical supply chain sustainability to ensure the whole sector runs smoothly ensuring the national sustainability index from time to time.
An analysis of legislative provisions and their interpretation as understood in theory and applicable in the industry to be a reasonable base is mandatory for such policy proposals or presentations toward the vision of a nation that has energy security and energy transition with the least impact on the ecosystem. Therefore, the RE should be open to various interpretations from REUSE/RECYCLE/REVIVE/REVOLVE/REGULATE/REREGULATE/REUNITE in our objectives to achieve sustainability. Sustainability across the globe for several decades has depended on the energy security of a nation or its ability to manipulate energy resources and trade globally. To become a strong economy as we envision, we need to mostly revolve around fostering a sustainable and evolving human-machine nexus ensuring that interconnectedness is understood and actions implemented in line with that understanding, and trying to ensure that businesses and community leaders make the environment sustainable. Aware of the responsibility to ensure more resilient supply chains for the growth of our nation and its resolve for the near future and the goals set, it is also imperative to build a sustainable infrastructure and utilize all accessible and existing infrastructure to ensure a smooth transition into the new era of businesses and policy implementation. However, the larger question still not dealt with is if the renewable energy supply chains are green or not. Is it only the process of power generation that is green and refers to sustainability? Is it sustainable for the IPPs once the subsidies are removed now be funded through the cess collected by the governments from thermal power plants? Are we prepared for the legal ramifications like the legacy PPAs with the thermal power plants? Is ESG taken care of in the most elemental sector transitioning a major percentage of our economy by the green transition? Are we prepared for scrap disposal a couple of years down the line from the infrastructure that will become obsolete?
The Ministry of Corporate Affairs supervises and is the principal regulator with respect to ESG principles for all corporates/companies that are incorporated under the Companies Act and SEBI and are publicly listed companies as well as for asset managers.
SEBI’s BRSR is a framework notified for ensuring ESG disclosures on a mandatory basis. In 2021, SEBI introduced various consultation papers on ESG issues for public opinion and information such as the ‘Consultation Paper on introducing disclosure norms for ESG Mutual Fund Schemes ’, ‘Consultation Paper on ESG Rating Providers for Securities Markets ’ and ‘Consultation Paper on Green and Blue Bonds as a mode of Sustainable Finance ’. An advisory committee constituted under SEBI indicated the regulatory intent to move ESG issues to mainstream discussions and mandatory compliance with time. With the progression in ESG reporting and data analysis, MCA simultaneously imposed mandatory reporting on CSR under the Companies Act.
SEBI the capital markets regulator in India mandated the top 100 listed companies by market capitalization registered in India to file a business responsibility report (BRR) capturing their non-financial performance across ESG factors back in 2012. In May 2021, SEBI expanded the scope of BRR and updated the reporting mechanism to business responsibility and sustainability report (BRSR) with effect from the fiscal year of 2022–2023 vide Regulation 34(2)(f) of the Listing Regulations and its circular dated 10 May 2021 on ‘Business responsibility and sustainability reporting by listed entities’ (BRSR Circular) describing the initiatives taken by the listed entity from an ESG perspective. Further, it left the remaining listed entities with an option to voluntarily submit such reports .
The Listing Regulations were amended and now it mandated the top 1,000 listed entities (based on market capitalization) to disclose a BRSR (replacing the erstwhile BRR) in their annual report from 2022-23.
The BRSR framework seeks disclosure from listed entities of their performance against the nine principles mentioned hereunder of the ‘National Guidelines on Responsible Business Conduct ’ (NGRBC), which were issued by the Ministry of Corporate Affairs (MCA) in line with the Sustainable Development Goals (SDGs) listed by the UN and the guiding principles on business and human rights.
a) Ensure integrity, ethics, transparency, and accountability while conducting all their operations;
b) produce and provide goods and services in a sustainable manner keeping in mind HSE;
c) respect all employees and promote their well-being and their value chains;
d) All stakeholders’ interests are realized, and respected and duties towards them are responsibly fulfilled.;
e) Human Rights and liberties are respected, ensured, and promoted within and outside the organization;
f) Consciously contribute towards the protection and restoration of the environment;
g) Responsible contributions as global citizens towards influencing public and regulatory policy.
h) promote equality in opportunity, inclusive growth, and equitable development; and
i) Being responsible towards their consumers or customers and providing value while engaging with them.
BRSR format requires reporting that is divided into three parts which are further divided into two parts. The two parts are the essential indicators and leadership indicators. The essential indicators are expected to be mandatorily disclosed. However, the leadership indicators leave the choice of disclosure with the organization and may be voluntarily disclosed.
a) general disclosures,
b) management and process disclosures; and,
c) principle-wise, performance disclosures.
Some of the disclosures sought in the BRSR are:
a) Material ESG Risks and Opportunities
b) Goals based on sustainability and performance based on sustainability
c) Environment and resource-based disclosures like resource and disposal of water, GHG, air pollutants, e-waste, energy, etc.
d) Social/Employee/Society based disclosures on gender diversity, social diversity, training opportunities, health and safety procedures followed, benefits and incentives, etc., measures for differently abled persons, wages, turnover rates, welfare benefits, training, occupational health, and safety, etc.; (b) consumers – disclosures on product recalls, product labeling, complaints by consumers regarding cyber security, data privacy, etc.; and (c) communities – disclosures on social impact assessments, CSR, rehabilitation and resettlement, etc.
e) Disclosures related to the internal governance of an organization which covers areas such as employee training programs, employee and stakeholder awareness programs, whistle-blowing, anti-corruption or anti-bribery policies, fines and penalties imposed on the entity, accountability from directors or key management personnel, complaints with respect to conflicts of interest, affiliations with trade and industry associations, any corrective actions taken by authorities on issues related to anti-competitive conduct, etc.

The BRSR framework also specifically prescribes for inter-operability of reporting. Entities that prepare sustainability reports based on internationally accepted reporting frameworks may cross-reference the disclosures sought under the BRSR.
a) Global Reporting Initiative (GRI),
b) Sustainability Accounting Standards Board (SASB),
c) Task Force on Climate-Related Financial Disclosures (TCFD)
d) The International Integrated Reporting Council (IIRC))
Voluntary ESG disclosures are becoming a strategic move and customary for organizations beyond what is mentioned above. ESG reporting was mostly done voluntarily in India based on the initiatives of a business until SEBI mandated the top 1000 listed entities to mandatorily report.

The Regulatory Institution for banks in India, the RBI is also the Central Bank. The RBI highlighted in a paper it published in the year 2021 about ‘green finance’ laying down emphasis on it coming to the forefront for public policymaking and analysis. It also focuses on digital transformation and AI assisting in data capturing and analytics and a smooth nexus between technology and human functioning. It will facilitate us to assess the progress of the regulated entities in managing climate risks and their progress and initiatives in regulating risk mitigation for further environmental degradation.
With the development of space technology and building systems and platforms with satellite remote sensing, the scope for more solutions and opportunities will open in restoration and reviving the environment while ensuring corporate sustainability.
An illustration or example of this can be detecting hotspots in a city with no green cover by satellite remote sensing and strategizing plantation drives and reviving that area by inclusion of the community in that environment. Similarly replenishing the water tables that the satellite remote sensing technologies will warn us are getting depleted.
The idea is to involve corporates to also come up with solutions in affected areas or take responsibility for affected areas while complying with submitting the ESG scorecards in line with the frameworks. Such activities or operations may be incentivized by the Government by financial instruments or other innovative ideas.
a) On 26th of October 2021, SEBI floated the ‘Consultation Paper on introducing disclosure norms for ESG Mutual Fund Schemes ’. The objective was to ensure that the ESG schemes are implemented in letter and spirit, reflect consistency, transparency, and responsiveness, and are in line with the documented investment policy, strategy, and investments. It also proposed to limit investments by asset management companies to securities that have BRSR disclosures.
b) On 24th of January 2022, SEBI issued the ‘Consultation Paper on ESG Rating Providers for Securities Markets ’ that was not subject to regulatory oversight’ and proposed to notify a regulatory framework to develop a more reliable and comparable ESG rating system that is capable of streamlining and standardizing ESG ratings across the companies.
c) In the month of May 2022, SEBI constituted an advisory committee on ESG matters with the terms of reference of the committee including developing a comprehensive and reliable approach, indicators, and disclosures for ESG ratings, and enhancements to the scope of the BRSR. and other norms for ESG funds and resilient supply chains.
d) In the month of August 2022, SEBI issued the ‘Consultation Paper on Green and Blue Bonds as a Mode of Sustainable Finance ’ to delineate the definition of green debt securities. It also introduced ‘blue bonds’ and reduced the compliance cost for issuers of these securities and these proposals were aimed at aligning the regulatory framework with the updated Green Bond Principles (GBP) published by the International Capital Market Association (ICMA).
e) In the month of January 2022, SEBI introduced the ‘Consultation Paper on ESG Rating Providers for Securities Markets’ and laid out the minimum standards expected from ERPs, and identified key users of ESG ratings.

The financial bonds that are used to fund/ finance projects that have a positive impact on the environment and the social structure are referred to as green bonds/ social bonds or impact bonds.
a) Green bonds are referred to as bonds that are used to finance projects having a positive impact on the environment and working towards carbon-neutral development. Examples of such projects are renewable energy projects, green buildings, and energy-efficient projects. A report published by the Reserve Bank of India in January 2021 suggested that green bonds have constituted 0.7% of total bond issuance since 2018. It stated that the banks that were lending finances to the non-conventional energy sector constituted 7.9 percent of outstanding bank credit to the Indian Electricity Sector by the end of March 2020. The Securities and Exchange Board of India had issued 14 green bonds by the end of June 2022 in the Indian Market under the current framework.
Municipal Corporation of Ghaziabad was the first organization in April 2021 to issue the first green bond issued in India. Further, in the year 2022, the Government announced the issuance of the first sovereign green bonds to fund green infrastructure and further catalyze the strengthening of India’s green finance market.
b) Social bonds are bonds or instruments that are used to finance projects that have a positive impact on society and help sustainably raising the standards of living. Some examples of social bonds are affordable housing, affordable education, equal opportunity of education and job, affordable and effective healthcare, etc. and that is why social bonds are also gaining attention.
Pimpri-Chinchwad Municipal Corporation and the United Nations Development Programme India signed an MoU to create the first social impact bond of India in 2021.
c) Impact bonds are financial instruments that are used to finance projects that have a substantial amount of positive impact on society and the environment and are generally used to fund public sector projects where the investor receives profitable returns on their investments when the projects meet their pre-agreed contractual targets towards project development and implementation. These bonds are also gaining traction, particularly in the social welfare and employment sectors.
In December 2021, the National Skill Development Corporation, in collaboration with a coalition comprising King Charles’s British Asian Trust, the Michael & Susan Dell Foundation, the Children’s Investment Fund Foundation, HSBC India, JSW Foundation and Dubai Cares, with Foreign, Commonwealth & Development Office (FCDO) (UK Government) and USAID as technical partners, launched the first-of-its-kind and the largest impact bond to raise USD 14.4 million to be invested in skills training for 50,000 young people.
Sustainability-linked bonds (SLBs) are fixed-income financial instruments whose characteristics with respect to their financial structure are predefined to their ESG objectives and due to their predefined performance-based evaluation against Sustainability Performance Targets (SPTs) through predefined Key Performance Indicators (KPIs) they have gradually gained importance not only globally but among Indian issuers also.
In 2021, UltraTech Cement raised USD 400 million by issuing senior unsecured USD-denominated notes in the form of SLBs, and the bonds are listed on the Singapore Stock Exchange .
JSW Steel and Adani Electricity Mumbai Limited have also issued SLBs aggregating to USD 800 million in the past year .
Sustainability-linked bonds (SLBs) first joined the green, social, and sustainability (GSS) bond family in 2018. However, inherently they belong to different groups because SLBs do not fund green/social projects. In fact, the SLBs are linked to sustainability targets and there is a financial penalty or reward structure based on the achievement/failure of these targets. Issuers are free to use the proceeds as they wish, but these bonds serve as a commitment from issuers to investors against the targets set. SLBs can act as a huge lever for entities, particularly in important sectors of the economy like energy, steel, chemicals, cement, etc., and also support the costs of transition.
The Transition Plans are Strong and Resilient with Ambitious targets with KPI’s
Key performance indicators (KPIs) are the data points chosen for data analysis during the transition phase.
 GHG emission reductions targets and clarity about Scope 1 reductions, Scope II reductions and Scope III Reductions and their targets
 SPT’s sustainability performance targets (e.g., 20% reduction).
 Material scopes of emissions.
 Based on Science-based metrics i.e., shift from economic intensity targets
 Decarbonisation pathways
It is globally informed that Paris-aligned targets should be linked to a 1.5°C sector-specific pathway.
Kpi Dates And Bond Call Dates
There are events when the KPI dates do not line up with the bond call dates. It should be noted that if we intend to ensure sustainability and actually work towards environment restoration, it must be accepted that SLBs are considered only as good as the underlying transition plan, it includes all material sources of emissions, and reinforces the issuers’ commitment through credible bond structures.
The Supreme Court of India pioneered public interest litigation (PIL), making access to courts easier through the well-settled principle of locus standi. The ambit and extent of PIL have significantly expanded over the years and has been used as a major device for resolving disputes around the protection of the environment. There is also a constitutional basis for the courts to look into environmental issues, in particular Article 21 of the Constitution of India, which provides for the ‘protection of life and personal liberty’ as a fundamental right. Article 21 has been expanded by judicial interpretation over the years to include the right to a healthy and pollution-free environment, amongst others. Moreover, in 2010, the Government established a specialized body, i.e., the National Green Tribunal, a quasi-judicial body, for effective and expeditious disposal of cases relating to environmental protection and the conservation of forests and other natural resources, including the enforcement of any legal right relating to the environment and giving relief and compensation for damages to persons and property.
The regulatory framework related to environmental, social, and governance (ESG) is not found in any specific legislation but comes under various pieces of legislation and statutes ensuring the spirit of the concept is executed. These legislations/Statutes include the Factories Act, 1948, Environment Protection Act, 1986, Air (Prevention and Control of Pollution) Act, 1981, Water (Prevention and Control of Pollution) Act, 1974, Hazardous Waste (Management, Handling, and Transboundary Movement) Rules, 2016, Companies Act, 2013 (Companies Act), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), Prevention of Money Laundering Act, 2002, Prevention of Corruption Act, 1988, and laws with respect to the payment of minimum wage, bonus, gratuity, welfare activities, health, and safety, etc. Various aspects of ESG are covered under these pieces of legislation in a fragmented manner.
For instance when we read the Companies Act, Section 134(3)(m) requires the board’s report to contain details on the conservation of energy, including any steps taken or the impact on the conservation of energy, steps taken to utilize alternate sources of energy, capital investment in energy conservation equipment, efforts towards technology absorption, etc. Similarly, Section 166 casts a duty on a director of a company to act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment.
Section 135 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014 makes it mandatory for companies with a specified net worth, turnover, or net profit to constitute a Corporate Social Responsibility (CSR) committee to oversee the CSR policy and activities. Eligible companies are required to annually spend at least 2% of their average net profits of the last three financial years on CSR. Further, Section 149 requires certain classes of companies to have a female director. Additionally, Regulation 17(1)(a) of the Listing Regulations requires the top 1,000 listed entities (based on market capitalization) to have an independent, female director on their boards. Section 177 requires the 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, 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. Section 178 requires the board of every listed company and certain classes of public companies to constitute a nomination and remuneration committee (NRC) consisting of three or more non-executive directors, of which not less than half shall be independent directors. The chairperson of the company (whether executive or non-executive) may be appointed as a member of the NRC but shall not act as chair. Additionally, Regulation 19 of the Listing Regulations requires that at least two-thirds of the directors on the NRC of a listed entity must be independent, and the chairperson of the NRC must be an independent director.
Therefore, we see that all parameters of the ESG have been covered under various statutes that are in force in India. The necessary mandate now is also to ensure compliance on the ground in line with the letter and spirit of the Statute and ensure the desired reforms for restoring the environment into a sustainable resilient environment and supporting life forms.
In recent times, the term greenwashing has often been used to represent sustainable practices which, however, do not translate into real actions. Therefore, actions are “painted” green, when they are not green at all. As illustrated before in the paper, green energy projects are actually not green at all if we analyze the whole supply chain from mining of resources to producing the generator equipment and disposal of the equipment once it is obsolete. Also, the land masses it is using where agricultural lands are being converted into parks and windmills are threatening the migratory birds. Are these sustainable? Are these practices truly green?
More rarely, the concept of isomorphism in ESG and Sustainability reporting has been discussed.
This approach does not necessarily have to be linked to greenwashing. But in most cases and sectors as of now isomorphism and greenwashing could coincide.
this phenomenon is occurring in the area of Sustainability and ESG is Isomorphism which inherently mean or applies “when two complex structures [environmental vs. corporate sustainability] can be mapped onto each other, in such a way that to each part of one structure [reports and data submission], there is a corresponding part in the other structure [green bonds/ sustainability linked bonds/ financial instruments], where corresponding means that the two parts play similar roles in the respective structures ”
In sociology, isomorphism is understood as the similarity of two processes or structures of one organization to those of another, be it the result of imitation or independent development under similar constraints The question here arises how can one shoe fit all in ESG reporting in the industry?
There are three main types of institutional isomorphism: normative, coercive, and mimetic and these can also create isomorphic paradoxes that hinder such development and execution of the intent of the processes . These paradoxes are related to an organization’s remit, resources, operations, functioning, methods of reporting compliances, accountability, and professionalization.
In simple terms, isomorphism is the tendency of people (individuals or groups) or systems belonging to a specific field [Corporates] to resemble each other in some basic requirements of practices and styles of thought [ESG REPORTING FRAMEWORKS], by virtue of mimetic, coercive, and regulatory mechanisms. That becomes clear on analyzing certain convergence of content when reading the various ESG and Sustainability reports of different companies of different sectors.
The researcher here is trying to distinguish and eliminate the cases of the so-called “coercive isomorphism” by the convergence of contents/reports/data that are dictated and required by law to establish or reach benchmarks. The issue is that in such cases for ease of doing business, more than ever, the similarity is required for ensuring timely submissions and compliances. If it comes to regulatory requests, zero tolerance is the approach that will be adopted for checking compliance. (though currently only on paper for ESG and for all companies alike). Therefore, the phenomenon of not helping us practically to restore or revive the environment and promote sustainability for all should not surprise us at all. In fact, development and growth are happening on the side of digital transformation, IoT, AI, and machine learning being able to collect and analyze data and prepare algorithms for early warning systems and reporting compliances ensuring corporate sustainability and governance at a very micro level.
It is not surprising that regulators are demanding ever more robust ESG and Sustainability disclosures. The need of the hour is to also promote the execution and implementation of these concepts on the ground to impact. This obviously leads to common elements. On the one hand, this convergence also facilitates the users of these reports, who are thus able to find all the elements exactly where they expect. On the other hand, however, this limits the development of innovative practices to be implemented in reporting. This incredible convergence means that all players are adopting common practices, without trying to differentiate or do anything original.
We see various climate financing challenges and initiatives being taken across the world when it comes to creating and developing resilience and providing robust infrastructures in the underdeveloped and developing world. For such a transformation various multilateral development banks are taking the lead in financing these green initiatives by providing finance and debt and taking the lead. The question that arises is whether ESG is being used as a model for debt and credit creation for recreating the balance in the economic paradigm that has been stumbling since the energy security dependence has been removed from hydrocarbons to green energy. Although on a daily basis, we are witnessing the increasingly devastating effects on the environment and the impact of the climate crisis becoming more apparent with each passing year, it is imperative for us to realize that it is not a global environmental emergency but a long drawn process that was ignored under the veil or corporate sustainability and more economic and financial models were created to restore the environment and balance the sustainability index than environmental models and checks and balances. We were as a generation trying to restore the environment on paper in compliance while continually exploiting the resources of earth and human beings for profit maximization and corporate sustainability. We are still seeing the multilateral development banks (MDBs) playing only a marginal role in the global response to actually work on the restoration of the environment. The annual meetings of the World Bank and the International Monetary Fund on October 9-15, 2023 (being held as I write the paper) are a crucial opportunity to change course.
With the realization that climate emergency and green finance can in themselves be an unsustainable way to deal with the crisis we have been ignoring despite global warming warnings and man-made environmental disasters caused due to unsustainable practices over the decades, ESG is now taking a central role as to how firms across the globe in a wide range of sectors operate and transform to recreate the lost balance with nature and natural assets. The method to execute ESG has been through finance and asset management making it mandatory for companies to report sustainability alongside financial progress and development. ESG is influencing companies to define their purpose, vision, mission, and strategy towards this environmental transformation towards sustainability parallelly being executed with the digital transformation of all reporting and compliance systems. It is increasingly shaping the functioning of companies and their hiring practices and compliance regulatory activities. However, the question still remains whether the apparent embrace of ESG will deliver real progress globally/nationally remains to be seen.

The key challenges from achieving reasonable levels of equity and establishing equality of opportunity to ensuring environmental sustainability we need a cent percent level of commitment and consistency with effective solutions from all hands on the deck, including corporate involvement, businesses, governments, the finance sector, education reforms, the courts and justice reforms, and the nonprofit sphere.
Businesses and companies are promising to align their objectives of how they measure their performance with broader imperatives of sustainability, development, and social well-being. However, achieving these needs incentivizing and penalizing legal reforms while keeping in view the futuristic approach of prevention of legal ramifications and complications in debt cycles, fraudulent reporting, on paper compliances not supplemented with on-ground reforms and contractual agreements.
Certain parameters that can be accomplished with the cooperation of all verticals are keeping and fulfilling goals of increasing the green cover in specified areas, creating carbon sinks, promoting indigenous practices and cultures with diversity and inclusion, figuring out a way to move ahead as one planet and one family by stopping wars over political, religious and resource availability propagandas and make sure ESG is not another concept that came and did greenwash by being an excellent marketing strategy for big businesses and lobby’s to sustain their profitable ventures attracting investment, stakeholder trust and contributions while there is no positive impact on the environment, sustainability, and governance as a global village.
We need to ensure that in the quest for saving corporate persons having perpetual lives with our extensive exploitation of human and natural resources, humans do not get endangered by their own activities and walk the path of extinction by paving it themselves.


Divya Sood, Energy and Environment Law Advisor, Industry Expertise in Regulatory Compliances; BBA. LLB, LLM, PhD Research Scholar.

Tauheed Alam, Associate Professor, UPES, Dehradun.


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