ESG implementation in Corporate India: Progress, Challenges, and Solutions Compared to the EU Approach

[By Basil Gupta]

The author is a student of National Law University, Jodhpur.



The idea of Corporate Social Responsibility (‘CSR) was introduced to the Indian corporate world to include social and environmental issues in their business practices. Initially, CSR was a popular topic in corporate law and governance, but recently there has been a shift towards Environmental, Social, and Governance (ESG) factors. This change occurred as “sustainability” became a major focus in corporate and financial law. Companies now aim to have portfolios that have taken the ESG factors into consideration, including environmental (such as climate change), social (such as human rights), and governance. The environmental factor refers to how a company manages its impact on the environment, such as its carbon emissions, resource consumption, and waste management practices. The social factor refers to how a company manages its impact on society, such as its labour practices, human rights record, and community engagement. The governance factor refers to how a company is managed, including its leadership structure, transparency, and accountability to shareholders. Professor MacNeil and Esser introduced the concept of the financial model of ESG, which puts emphasis on the role of capital and investors and reduces the attention on the responsibilities of directors while broadening the interests of stakeholders by focusing on sustainability. The shift from CSR to ESG can be attributed to three main reasons. First, CSR was given a prescriptive status through the Companies Act, 2013, which emphasized the stakeholder vs. shareholder debate in the context of CSR, with proponents on both sides arguing for their perspectives. However, there is growing recognition that a stakeholder-centric approach to CSR can be beneficial for both the corporation and the broader community. Second, with the amendment of CSR regulations in 2019, CSR became legally binding and turned into a form of corporate philanthropy. Finally, the CSR regime in India failed to address negative externalities due to being too broad, a lack of monitoring and enforcement mechanisms, and a reliance on philanthropy, leading to dissatisfaction with CSR, which paved the way for ESG to gain prominence.

In this article, the author discusses the current framework of ESG norms in India, the ESG principles adopted in the European Union (EU), and the recommended solutions for the proper implementation of ESG in India. The author has also analysed through statistics whether corporate India is doing enough in ESG.

ESG and Corporate India

Although Indian companies and investors have come to recognize the significance of “sustainability” in their operations, ESG is still in its early stages in India. The government of India has implemented policies to promote sustainability reporting, such as the introduction of “Voluntary Guidelines” by the Ministry of Corporate Affairs (MCA) in 2011. This was later transitioned into a regulatory requirement by the Security and Exchange Board of India (SEBI) in 2012, which mandated “the top 100 listed companies based on market capitalization” to include Business Responsibility Reports (BRR) in their annual company reports. Then in 2020, SEBI went a step further by mandating companies to not only to report their financial compliance but also to disclose the social and environmental impact of their business operations in their annual report, replacing BRR with Business Responsibility and Sustainability Report (BRSR) for the top 1000 listed companies based on market capitalization for the financial year 2022-23.

In India, where there are over 1.45 million registered companies, the requirements set by SEBI only apply to a small fraction of companies that comply with ESG norms, which is less than 0.1%. When discussing ESG in India, a question often arises: is Corporate India doing enough? While it is difficult to make generalizations about ESG compliance across all Indian businesses as it varies by company and industry, Indian businesses have been working to improve their ESG performance in recent years. For example, CRISIL, a leading analytical company in India, conducted a risk assessment across 53 sectors for the fiscal year 2021 and found that Indian companies have improved their ESG score and better disclosed ESG information compared to previous years.

It has been discovered that complying with ESG standards can result in value creation for a company. Adherence to ESG norms by companies can improve their public image, attract more investment, and allow them to raise capital at a lower cost. On the other hand, investing in a company that does not follow ESG standards has been found to expose investors to 28% more risk compared to investing in a company which is ESG compliant.

ESG in the European Union (EU): Comparative Analysis

In India, while the BRSR requirement mandates companies to disclose information on their sustainable practices, there is no other mandatory legislation in place to ensure compliance with ESG norms, thus providing little incentive for integrating ESG factors into their operations. However, in EU they adopted a mechanism through which ESG became a central part of their economy. They did that by formulating an Action plan on “sustainable financing”. Sustainable financing is the practice of considering the impact on the environment and society in the investment decision-making process, which results in increased investment in sustainable and long-term initiatives, which also partakes ESG investing. In order to increase financial strength of the companies based on sustainability, the EU Commission developed a unified classification system known as EU taxonomy, creation of EU ECO labels and a green bond standard. Through EU Taxonomy, the investors and the stakeholders could know whether the company’s profits are from sustainable activities or not. EU ECO labels protect the companies trust in the sustainable financial market. Currently, there are no rules that mandate an issuer to clarify the reason for issuing a green bond, or any requirement for regular reporting. Therefore, the European Union Green Bond Standard (EU GBS) is a prospectus regulation that provides guidance on a standard for green bonds.

Recommended Solutions for the Proper Incorporation of ESG Standards in Corporate India

Whether the Indian corporate system could incorporate the above-mentioned mechanisms in order for the companies to be ESG compliant. The answer to this is that we cannot incorporate the above methods in the exact form as it would result in over-regulations, which could make it difficult for companies to comply with all of them. This could lead to companies ignoring the regulations altogether or finding loopholes to circumvent them, defeating the purpose of ESG implementation. Additionally, there is a risk of excessive monitoring and reporting requirements that could burden companies, especially smaller ones. If the regulatory burden becomes too high, companies may choose to avoid ESG implementation altogether or shift their operations to other countries with less stringent regulations. In India, it is well known that despite having favourable laws, there is a widespread problem of inadequate enforcement across all industries. So, a probable solution is to incorporate the ESG standards in the Companies Act, 2013, which will mandate the companies to issue “green” shares which will give rise to a new type of Company.

Also, a standardized template is necessary for the effective implementation of ESG principles. A survey conducted by CRISIL showed that India is just beginning its journey towards ESG, with a focus currently on disclosure requirements. Regulators such as the SEBI and the Reserve Bank of India (RBI) are promoting better ESG disclosure, but the first step towards proper implementation is the availability of high-quality data. The use of various indices by different companies complicates the process for lenders to factor ESG into their investment decisions.

Additionally, there is the challenge of capacity and capability – once the BRSR becomes mandatory for the top 1000 companies, in a few years, consistent data will be available for most of the ESG Key Performance Indicators (KPIs). At this point, regulators will have the capability of developing templates, scorecards, or frameworks that transparently outline the criteria for evaluating ESG. These criteria could include how the companies evaluate their environmental impact, social impact, governance practices and how these criteria are combined to create a composite score for each company, regardless of its business operations. This will allow for benchmarking of companies from a sustainability perspective.

In ESG, while “environment” can be benchmarked and evaluated, the aspects of social and governance remain somewhat ambiguous. Climate awareness is easier to adopt, but social and governance are more dependent on intention and can be challenging to assess. In the post-pandemic world, social has become increasingly important. CRISIL has identified several social parameters to evaluate, starting with employees and workers: their safety, gender diversity, wage inequality, and how companies handle cases of harassment.

The company’s interactions with vendors and customers also play a key role in governance. This includes how they handle complaints and have mechanisms for transparent reporting of this information in their annual reports or other forms of communication.

Companies also have a responsibility to the communities in which they operate, including measures taken to mitigate negative impacts, such as displacement or environmental damage, and steps taken for community rehabilitation. Other factors such as child labour, discrimination, product recalls, and others should also be taken into consideration.


In India, in the first half of 2021, a significant amount of capital amounting to 200 billion dollars was invested in ESG, which is three times the amount invested in 2020. Although India started late, it now has several large ESG-focused funds such as SBI Magnum Equity ESG, Axis ESG, and Quantum India ESG. This has led corporate CFOs and treasury managers to start prioritizing ESG. There are companies that have implemented ESG standards, such as Havells which reduces its use of radioactive isotopes, Godrej increases its renewable energy investments, UltraTech adopted low-carbon strategies, and Asian Paints started using eco-friendly materials, all these companies have seen higher stock performance. For example, Asian Paints’ return on equity increased to 26.39% as compared to its previous financial year, and HUL, India’s largest FMCG company, had the highest ROE of 82.99% in 10 years. This shows that these companies attract more investment and give benefit to their public shareholders.

It can be concluded that while Indian companies are making progress in complying with ESG norms but still there is a long way to go. The success of ESG in the EU is due to incorporating frameworks such as the EU taxonomy, EU GBS, and ECO labels. These approaches of ESG, while successful in EU, cannot simply be implemented in India without a strong legal foundation. To mandatorily implement ESG, both financially and entity-wise, it is important to include ESG issues as part of shareholder stewardship activities.


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