Parliamentary Standing Committee on Finance's Recommendations: ESG Oversight Body

The Parliamentary Standing Committee on Finance has proposed the creation of a dedicated Environmental, Social, and Governance (ESG) oversight body within the Ministry of Corporate Affairs (MCA). This comes amid growing concerns over greenwashing and the need for businesses to adopt authentic sustainability practices.

What is ESG (Environmental, Social, and Governance)?

ESG refers to the criteria used to evaluate a company’s impact on environmental, social, and governance factors:

• Environmental: Assesses a company’s efforts to manage its environmental footprint, including carbon emissions, waste management, and use of renewable resources.

• Social: Refers to how a company impacts society in terms of human rights, labor practices, and community engagement.

• Governance: Encompasses the practices related to corporate governance, such as board transparency, ethical business practices, and accountability.

Why ESG is Important for India

1. Environmental Factors:

   • India faces severe climate challenges, including floods, heatwaves, and sea-level rise. According to the Centre for Science and Environment (CSE), 2024 witnessed extreme weather on 322 out of 366 days in India.

   • Companies that adopt clean energy, reduce carbon emissions, and integrate environmental sustainability can mitigate such risks.

2. Social Factors:

   • India continues to grapple with poverty, inequality, and lack of access to basic needs. Companies that prioritize social responsibility can create a more inclusive economy and contribute to societal progress.

3. Governance Factors:

   • Strong corporate governance helps improve transparency, build trust, and attracts long-term investments, ensuring sustainable growth in India’s economy.

Recommendations by the Parliamentary Standing Committee

The committee has suggested several measures to improve ESG transparency and combat greenwashing:

• Establishing an ESG Oversight Body:

  • A dedicated ESG oversight body within the MCA to ensure companies’ sustainability claims are genuine.

  • The body should include forensic experts to detect fraudulent ESG claims.

• Strengthening Legal Framework:

  • Amend the Companies Act, 2013 to make ESG a core responsibility of directors.

  • Embed sustainability into business strategy through sector-specific ESG guidelines.

• Tackling Greenwashing:

  • Introduce stricter penalties for false ESG claims to act as a deterrent.

  • The panel recommends creating a system for early detection of financial crimes and strengthening the Serious Fraud Investigation Office (SFIO) and the National Financial Reporting Authority (NFRA).

• Improved CSR Oversight:

  • Strengthen the oversight system for Corporate Social Responsibility (CSR) to improve its transparency and effectiveness.

Greenwashing

Greenwashing refers to companies that make false or exaggerated environmental claims about their products or practices to create a misleading impression of environmental responsibility.

Factors Contributing to Greenwashing in India:

1. Rising Eco-Consumerism:

   • With increasing consumer awareness about climate change and pollution, there has been a surge in demand for sustainable products. Companies exploit this demand by using vague terms like "eco-friendly" without any certification or actual sustainable practices.

2. Weak Regulatory Enforcement:

   • India’s Bureau of Indian Standards (BIS) Eco-Mark certification is not mandatory, and many products lack this certification, allowing companies to falsely advertise their products as eco-friendly.

   • There is no unified framework for ESG-related requirements, leading to regulatory gaps that companies can exploit.

3. Cultural Exploitation:

   • Companies use labels like “natural” or “Ayurvedic” to appeal to eco-conscious consumers, even when their production methods are unsustainable and harmful to the environment.

4. CSR and Marketing Tactics:

   • Companies often highlight token CSR activities like tree planting, while continuing environmentally damaging practices, particularly in fossil fuels or heavy manufacturing sectors.

India’s Initiatives Related to Greenwashing

To combat greenwashing and ensure authentic sustainability practices, India has introduced several measures:

• Consumer Protection Act, 2019:

  • The Central Consumer Protection Authority (CCPA) regulates misleading environmental claims.

• Green Rating Project:

  • Led by the Centre for Science and Environment (CSE), this project rates industries based on their environmental performance.

• Advertising Standards Council of India (ASCI) Guidelines:

  • Any advertisement making environmental claims must be specific, accurate, and not misleading.

India’s Efforts in ESG Reporting

• The Securities and Exchange Board of India (SEBI) has mandated that the top 1,000 listed companies disclose their ESG performance using the Business Responsibility and Sustainability Reporting (BRSR) framework.

• This reporting framework aligns with global standards like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).

Conclusion

The establishment of an ESG oversight body within the MCA, alongside strengthening regulatory mechanisms and penalties for false claims, will help India combat greenwashing, improve corporate transparency, and drive genuine sustainability in the corporate sector. As India moves towards a more sustainable future, these measures will ensure that companies are held accountable for their environmental, social, and governance practices.