Evolving regulatory contours of ESG: An inescapable engine to inclusive growth

Environmental, Social, and Governance (“ESG”) principles has fundamentally reoriented corporate governance, where financial profitability is no longer the sole determinant of enterprise success. ESG-screened portfolios outperform conventional benchmarks, robust disclosures reduce the cost of capital, and companies with strong ESG credentials command a 10–15% premium in M&A transactions. As sustainability concerns attract regulatory and market attention, the landscape has pivoted toward a more holistic paradigm of disclosure.

India's journey toward mandatory ESG reporting has been incremental but decisive. Early regulation focused on pollution control, culminating in the Environment Protection Act, 1986. Over time, focus began shifting toward corporate responsibility post-liberalisation. Thus, Environment Impact Assessment was introduced in 1994, and revamped comprehensively in 2006. Similarly, the Companies Act, 2013 (“Companies Act”), introduced Corporate Social Responsibility (“CSR”), and requires directors to act ‘in the best interests of… the community and for the protection of environment,’ and the Supreme Court linked this to corporate evolution: ‘from the (i) familial to (ii) contractual and managerial to (iii) a regime of social accountability and responsibility.’ The ongoing regulatory approach relies on market forces to reward ESG-integrated companies. In particular, the rise of green finance has directly linked valuations, profitability, and perception to sensitivity to ESG goals; examples include green bonds and the Carbon Credit Trading Scheme.

ESG’s transformation from a compliance concern to a differentiator between businesses has emerged after much regulatory activity. In 2011, the MCA released the National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business (“NVGs”). SEBI operationalized these in 2012 by mandating Business Responsibility Reporting (“BRR”) for the top 100 listed entities, extended to the top 500 by 2015. In 2018, the MCA updated the NVGs into the National Guidelines on Responsible Business Conduct (“NGRBC”), aligning India’s framework with the Sustainable Development Goals (“SDGs”). A 2020 review found BRR disclosures lacked accuracy and comparability, prompting replacement with the more rigorous Business Responsibility and Sustainability Reporting (“BRSR”): quantitative, granular, and interoperable with international standards.

In 2023, SEBI introduced ‘BRSR Core’ — 49 KPIs across nine ESG attributes requiring mandatory assurance: (1) Greenhouse Gas Footprint; (2) Water Footprint; (3) Energy Footprint; (4) Biodiversity; (5) Supply Chain Disclosures; (6) Gender and Diversity; (7) Equal Opportunity Employer; (8) Business Ethics; and (9) Openness of Business. In 2024, Industry Standards Forum’s Standards were adopted for BRSR Core, with detailed guidance issued in 2025. The regulatory timeline of BRSR and BRSR Core adoption is summarized as follows:

• FY 2022–23: Mandatory BRSR reporting for the top 1,000 listed entities by market capitalisation, replacing the erstwhile BRR format.

• FY 2025–26: Voluntary value chain disclosures for the top 250 listed entities by market capitalisation, alongside the full extension of the BRSR mandate across all top 1,000 listed entities.

• FY 2026–27: Mandatory assessment or assurance for BRSR Core KPIs across all top 1,000 listed entities by market capitalisation.

BRSR shifts sustainability reporting from compliance-driven to performance-driven, using quantifiable indicators harmonized with IFRS Sustainability Disclosure Standards and GRI Reporting Standards, facilitating green finance while preventing greenwashing. Indian requirements are more robust than several global analogues: the United States’ Securities Exchange Commission’s 2024 rules lack value chain and Scope 3 coverage, and Japan's standards require limited third-party assurance. However, the European Union's Corporate Sustainability Reporting Directive mandates granular narrative context, quantitative metrics, time-bound targets, and progress tracking.

The BRSR framework is enshrined under Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”), read with Section IV-B of the SEBI Master Circular for compliance with the provisions of the LODR, along with the Industry Standards Note and National Stock Exchange of India’s specific guides. The disclosures therein are broadly arranged around the 9 (nine) principles originally enunciated in the NGRBC.

The 9 (nine) principles of dsclosure

• Principle 1 (Ethical Governance) covers anti-corruption, conflict of interest, and ethics training, requiring disclosure of complaints received, training coverage, and relevant research & development and capital expenditure.

• Principle 2 (Sustainable Product Lifecycle) requires disclosure of research & development and capital expenditure directed toward improving environmental and social impacts, sustainable sourcing percentages, and inputs procured from MSMEs or small producers.

• Principle 3 (Employee Well-being) covers health, accident, maternity, paternity, and daycare benefits, median remuneration across organizational levels, and gender diversity ratios, disaggregated by permanent and non-permanent workforce.

• Principle 4 (Stakeholder Engagement) requires identification of stakeholder groups, engagement frequency and channels, and mapping of key concerns and the entity's response.

• Principle 5 (Human Rights) requires disclosure of training coverage — including for contractual and value chain workers — complaints regarding child labor, forced labor, and sexual harassment, and grievance redressal mechanisms.

• Principle 6 (Environmental Stewardship) is the most data-intensive, mandating granular reporting on energy consumption by source, water withdrawal by source, and waste generation by type and disposal method.

• Principle 7 (Public Policy Advocacy) assesses trade association memberships and policy positions on anti-competitive conduct, taxation, and environmental regulation.

• Principle 8 (Inclusive Growth) assesses CSR impact through Social Impact Assessments, the percentage of CSR spending directed toward local development, and beneficiaries disaggregated by gender and vulnerability.

• Principle 9 (Consumer Value) focuses on data privacy and product recalls. Data breach reporting remains a critical gap — only 25 companies across the top 1,000 disclosed breaches in FY 2024–25, an implausibly low figure. This gap is sharpened by the Digital Personal Data Protection Act, 2023 (“DPDPA”), which imposes mandatory breach notification on data fiduciaries, creating a layered compliance obligation.

Performance indicators are categorized into mandatory essential indicators — such as water withdrawal by source — and voluntary leadership indicators, including biodiversity impact assessments in ecologically sensitive areas.

SEBI has established a regulatory framework for ESG Rating Providers (“ERPs”) through the 2025 SEBI Master Circular for ERPs, consolidating rules on registration, methodology disclosure, and conflict of interest management. ERPs must offer ‘Core ESG Ratings’ based on third-party assured BRSR data — with unverified information flagged — and provide a Core Combined score measuring both current ESG status and transition capacity.

Section 166(2) of the Companies Act, read with Regulation 34(2)(f) of the LODR, exposes directors who approve BRSR disclosures without adequate verification to personal liability. Regulation 98 of the LODR attracts fines, suspension of trading, and freezing of promoter holdings; with penalties prescribed under Section 15HB of the SEBI Act, 1992. Inaccurate disclosures may constitute manipulative or fraudulent trade practice under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003. For independent directors, the ‘safe harbor’ provision under Section 149(12) of the Companies Act only applies if the default occurred without their knowledge, consent, or connivance. If a director fails to exercise “due diligence,” they may be held personally liable for ESG-related misstatements. Misleading ESG claims may further constitute 'greenwashing' under the Central Consumer Protection Authority’s Guidelines for Prevention and Regulation of Greenwashing or Misleading Environmental Claims, 2024, exposing companies to compensation orders and corrective advertising.

A persistent gap between formal policy adoption and measurable operational delivery remains. Six recommendations are proposed:

1. Mandate time-bound targets: With 66.2% of companies lacking measurable greenhouse gas emission targets as of FY 2024–25, SEBI should introduce mandatory, time-bound target-setting with phased implementation across all ESG parameters.

2. Expand the assurance mandate: Independent external assurance remains a minority practice. SEBI should extend the BRSR Core assurance mandate to the top 5,000 companies within three years and require digital ESG data management systems with a clear audit trail.

3. Close the workforce accountability gap: Grievance mechanism coverage drops from 98.37% for permanent employees to 68.84% for non-permanent workers. SEBI should mandate specific disclosures for non-permanent workforces covering benefit coverage, wage equity, training rates, and grievance accessibility.

4. Strengthen value chain and scope 3 disclosures: With 78.62% of companies assessing fewer than 20% of partners for environmental impacts and 57.1% not disclosing Scope 3 emissions, SEBI should require standard contractual ESG clauses, capacity-building for unlisted partners, and mandatory Scope 3 reporting for the top 500 companies.

5. Integrate biodiversity and digital privacy cisclosures: With 75.97% of companies providing zero substantive biodiversity response despite 80.04% operating near ecologically sensitive areas, and only 25 of 982 companies disclosing data breaches in FY 2024–25, SEBI should integrate nature-related financial disclosures and strengthen breach notification requirements aligned with the DPDPA.

5. Revive BRSR Lite: The NGRBC had proposed 'BRSR Lite', which was a compact voluntary reporting standard. The same may be revived and implemented in phases across all listed companies.

The consistent global trend of ESG adoption cannot be understated, and leaves little scope for want of necessary impetus in the face of various obvious and pressing reasons. India, committed to net-zero by 2070 while aspiring to developed-nation status by 2047, cannot achieve both goals without growth that is simultaneously robust and high on ESG. Sooner than later, ESG will truly be regarded as ECG to corporate functioning.

About the authors: Harish Kumar is a Senior Partner and Deekhit Bhattacharya is an Associate with Luthra and Luthra Law Offices India.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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