Parliamentary Standing Committee on Finance’s key Recommendations on Environmental, Social, and Governance (ESG)

Link copied successfully!

ESG refers to a set of standards to measure a company’s environmental and social impact.

Key Observations on ESG

Legal Backing: Companies Act, 2013 does not mention ESG explicitly, it is implied through aspects like Energy Conservation, POSH Act, Maternity Benefit, Corporate Social Responsibility (CSR) framework, etc.
Existing Risks: Greenwashing, inconsistent implementation across sectors, and the difficulties faced by small businesses in adopting robust ESG practices.

Dedicated ESG Oversight Body: Under Ministry of Corporate Affairs (MCA) for monitoring disclosures, ensuring compliance, and introducing penalties for greenwashing.
Amendment to Companies Act, 2013: Providing a clear legal basis for integrating ESG into core business strategies.
Formulating Sector-Specific Guidelines: Providing targeted support to Micro, Small, and Medium Enterprises (MSMEs).
Independent ESG Committees: Similar to audit committees, to ensure effective implementation and monitoring of ESG strategies.
Documentation: Dedicating an ESG chapter in Ministry’s Annual Report from FY 2025-26 onwards.

Business Responsibility and Sustainability Reporting (BRSR): Mandatory for top 1000 listed companies to make ESG disclosures.
BRSR Core: Introduced by SEBI for monitoring Greenwashing.
National Guidelines on Responsible Business Conduct (NGRBCs): Released by MCA.
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.