The Indian ESG framework aims to promote sustainability, but faces challenges like greenwashing, inconsistent implementation, and awareness; recommendations include establishing oversight bodies and improving regulations.

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.

Other Initiatives to promote ESG in India:

Business Responsibility and Sustainability Reporting (BRSR): It is a reporting framework notified by the SEBI for top 1000 listed companies in India.
BRSR Core: It mandates companies to disclose detailed information on various aspects of their value chains.
National Guidelines on Responsible Business Conduct (NGRBCs): These are voluntary guidelines released by Ministry of Corporate Affairs in 2019 with aim to encourage businesses to adopt ethical and sustainable practices.
Corporate Social Responsibility: Section 135 of Companies Act, 2013 makes it mandatory for companies of a certain turnover and profitability to spend 2% of their average net profit for the past 3 years on CSR activities.