Why in the News?

The Parliamentary standing committee on finance submitted a report in Lok Sabha and gave recommendations to improve ESG framework in India.

What is ESG Framework?

ESG (environmental, social, and governance) is a framework for evaluating a company's sustainability and ethical practices across three key areas: environmental impact, social responsibility, and corporate governance. 

Significance of ESG Framework:

• Global Alignment: Supports national and international sustainable development goals including SDGs and Paris Agreement.
• Financial Access: Attracts ESG-conscious investors, customers, and employees while enabling access to green financing
• Operational Efficiency: Reduces costs through sustainable practices like renewable energy adoption.
• Competitive Advantage: Drives innovation and resilience through best practices that minimize environmental/ social impacts
• Brand Value: Creates positive societal impact by addressing community needs and stakeholder concerns.

Challenges of ESG Reporting in India (Highlighted by the Parliamentary Standing Committee):

• Persistent Risk of Greenwashing: False or misleading claims about their ESG performance may lead to a loss of brand image.
• Inconsistent Implementation across sectors: Due to lack of ecognized regulations and fragmented approach of reporting.
• Difficulties faced by small businesses in adopting ESG practices: ESG adoption needs high upfront costs in terms of data collection, reporting, certification etc., posing burdens for small and mid-sized firms lacking resources and expertise.

Other Challenges:

• Lack of Awareness and Education: Many Indian businesses lack ESG awareness, expertise, and professionals; education on sustainability and ESG remains limited and underdeveloped.
• Integration with Business Strategy: Companies struggle to align ESG with core strategies, leading to costly, unproductive efforts that fail to create value or sustainability.
• Data Quality and Availability: Many Indian companies lack proper systems and standards, making ESG data unreliable and hard to measure or report consistently.
• Regulatory Fragmentation: SEBI mandates ESG disclosure for top 1000 listed firms.
  • India lacks uniform regulations: Clear, harmonized reporting frameworks.

Way Forward to make ESG effective:

Recommendation of Parliamentary standing committee:

• Dedicated ESG Oversight Body: To be set up under Ministry of Corporate Affairs to combat greenwashing.
• Amendment to Companies Act, 2013: To include ESG objectives as part of fiduciary duties of the directors.
• Independent ESG Committees: For ensuring effective implementation and monitoring of ESG strategies.

Other Recommendations:

• Set clear ESG goals: Businesses should start by setting clear ESG goals that are aligned with their business strategy. These goals should be specific, measurable, achievable, relevant, and time-bound.
• Invest in ESG Training and Capacity Building: For effective implementation of ESG strategies.
• Partner with ESG experts: Businesses can partner with ESG consulting firms to help them with ESG adoption. These experts can provide guidance and support on ESG best practices.