The Rise and Evolution of ESG Compliance in Indian Corporate Governance

Whereas other jurisdictions utilise an overarching “ESG law”, India has increasingly adopted an omni comprehensive system of regulation that blends statutory requirements, market-led disclosure mechanisms, and court interpretations.

Introduction

Corporate governance in the year 2025 finds itself at a crucial and transformative crossroads, significantly influenced by the dramatic rise in environmental, social, and governance (ESG) compliance requirements that have become increasingly prominent.¹ In India as well as on a global scale, regulatory bodies, a diverse array of investors, and various sectors of civil society are now collectively demanding a thorough and rigorous integration of ESG considerations into corporate strategy and public disclosure practices. This assignment undertakes a critical examination of the evolution, implementation, and overall impact of ESG norms within the framework of corporate law. It will provide detailed data, legal citations to support our analysis, notable case studies to illustrate key points, and a comprehensive comparative view of current international trends in this vital area.²

Brief understanding of ESG

ESG covers non-financial performance indicators that help companies to establish sustainable, ethical, and resilient to risk business models:

1. Environment indicators measure the firm’s impact on the environment, including emissions, energy consumption, waste disposal, and adherence to the accords on climate.

2. Social criteria review labour standards, community relations, data privacy, gender equality, and human rights observance.

3. Governance is the term used to relate to diversity on the board, anti-corruption policies, the right of the shareholders, and compensation.

ESG considerations together, have become an important and effective force that impels investment inflows and regulation worldwide. Indian companies and other companies globally have realised that consideration of ESG aspects is not merely important from the perspective of keeping a clean image within the marketplace, but also important to gain capital access and to manage the risks related to the operations effectively.³

Evolution of ESG law and regulation in India

Whereas other jurisdictions utilise an overarching “ESG law”, India has increasingly adopted an omni comprehensive system of regulation that blends statutory requirements, market-led disclosure mechanisms, and court interpretations. This Indian approach best represents a hybrid model by embracing reforms to corporate governance, sustainability reporting, and fiduciary obligations within the broad corporate law framework. India’s ESG progression can be outlined by several seminal legislative and regulation milestones:⁴

1. The Companies Act, 2013: Section 135 of the legislation created the first voluntary framework on Corporate Social Responsibility (CSR) worldwide by obliging companies falling within specific financial thresholds to allocate at least 2 per cent of their average previous three-year net profit to socially beneficial causes, including environmental sustainability, gender equality, education, and rural development. This section not only regularised corporate charity but also embedded the principle of corporate accountability within the statute. CSR requirements have evolved over the years to become an integral part of the Indian ESG framework with various amendments and governmental policies emphasising transparency, outcome assessment, and the reporting of unused CSR expenditure.

2. Section 166(2), expanded directors’ duties: This segment states a major transformation from the old theory of shareholder supremacy to the new concept of governance with the contribution of stakeholders. Directors are required to be honest in their dealings and to work for the benefit of the company’s whole, that is, the employees, community, and environment, they are thus making the planet and the moral aspect a major part of the fiduciary conduct. The Supreme Court, in its judgment Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd.⁵, supported this rule by interpreting the duties of directors as involving long-term interests of all the stakeholders and sustainable management rather than just profit maximisation.⁶

3. Section 134(3), mandatory disclosure requirements: According to Section 134(3)(m), Companies Act, companies are required to include in the Board’s report, a detailed description of their measures for energy conservation, the performance of their operations in terms of environment and the strategies they are using in managing risks. This requirement, indirectly, pushes towards ESG transparency by requiring substantial narrative disclosures on sustainability, energy efficiency, and environmental protection, therefore, corporate reporting is now at par with global standards such as Global Reporting Initiative (GRI) and Task Force on Climate-Related Financial Disclosures (TCFD).

4. Section 149 and the diversity of the Board: The Act’s Section 149, together with Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, requires that at least one woman Director be consistently appointed on the Board of Directors of listed and some public companies.⁷ This change, which was motivated by the principles of gender diversity, inclusivity, and equal governance, has caused a remarkable shift in the composition of corporate Boards. Gradually, the Securities and Exchange Board of India (SEBI) has been providing more and more guidance regarding the necessity for companies to boost Board independence, auditing practices, and ethics management policies in order to fortify governance resilience.⁸

5. SEBI’s contribution to ESG regulation: The SEBI has been the main force behind the establishment of ESG disclosure norms. The implementation of Business Responsibility Reports (BRR) in 2012 was the first step and then it moved in 2021 to the Business Responsibility and Sustainability Reports (BRSR) framework which was made compulsory for the largest 1000 listed companies in Financial Year (FY) 2023-2024 according to Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).⁹ The launch of the BRSR Core in 2023 has made ESG data reporting even more uniform by mandating the use of quantitative measures for such things as greenhouse gas (GHG) emissions, water consumption, waste handling, equal pay for men and women, and safety in the workplace. All these will have to be supported by third-party verification.¹⁰

6. Regulatory synergy and global alignment: The Indian ESG regulatory landscape brings about the cooperation and co-regulation of the Ministry of Corporate Affairs (MCA), SEBI, and the Reserve Bank of India (RBI). It has also synchronised the whole sustainability governance. Furthermore, proper Indian approach has been synchronised with the international bodies like the UN Sustainable Development Goals (SDGs), the Paris Climate Agreement, and the OECD Guidelines for Multinational Enterprises. SEBI’s frameworks draw increasingly closer to the EU Corporate Sustainability Reporting Directive (CSRD) and International Sustainability Standards Board (ISSB) standards, thus, India is recognised as a potential hub for ESG compliant investment. Together, these trends imply that India’s ESG evolution is not limited to voluntary practices but is moving towards a full-fledged legal and regulatory obligation incorporating at the core of and being the reason for the corporate law: sustainability, ethical governance, and social accountability.¹¹

ESG compliance in figures: Rapid growth and regulatory impact

Growth in ESG BRSR compliance among top 1000 listed Indian companies (2022-2025) according to SEBI.¹²

Key ESG implementation trends and data¹³

1. According to SEBI data, 88 per cent of top Indian listed companies now publish sustainability reports as of 2025, compared to less than 10 per cent a decade ago.

2. India’s green bond issuance doubled from USD 7.4 billion (2022) to USD 15.8 billion (2024), as SEBI extended debt regulations to cover all ESG-linked instruments.

3. In the Nifty 500, the average board diversity (women representation) for large caps exceeded 18.5 per cent in 2025, up from 14 per cent in 2020.

4. 92 per cent of major Indian institutional investors now include ESG risk as a strategic criterion in all investments.

India’s regulatory shift is mirrored by rising adoption of global frameworks [for example, TCFD, GRI, Global Real Estate Sustainability Benchmark (GRESB)] by Indian corporates.

Case law and litigation: Key recent decisions

Judicial interference has played a major role in India’s ESG scene, making corporations more responsible for the environment and the good of the community. The courts and the tribunals have started looking at the legal duties from the viewpoint of sustainability and responsible business practices, thus, making ESG considerations a part of corporate governance jurisprudence.

Supreme Court on directors’ fiduciary duties: The Court ruling in Tata Consultancy Services case¹⁴ was one of the most significant developments in terms of director’s fiduciary duties under Section 166(2), Companies Act, 2013. The Court made it clear that directors, besides being the shareholders’ agents, are also the keepers of wider stakeholder interests which include employees, customers, communities, and nature. This ruling not only marked the entry of ESG factors into the fiduciary domain but also proclaimed that sustainability and ethical governance are inextricably linked with the creation of long-term corporate value.

Class actions suits (CAS) and ESG misrepresentation: The trend of shareholder-led litigation around climate accountability, diversity at the workplace, and deceiving ESG disclosures has been on the rise in recent years. The courts have permitted the filing to go ahead under the provisions of Sections 34 and 245, Companies Act, 2013, which give recognition to the shareholder’s entitlement to get redress for ESG-related misrepresentation and highlight the importance of transparent and verifiable sustainability reporting. The case not only allowed for the protection of investors in the field of ESG but also laid the foundation for corporate accountability for accurate disclosure of information.¹⁵

Environmental adjudication by the National Green Tribunal (NGT): The NGT is the body that has significantly enhanced the ESG-linked accountability especially on the issues of climate change, project approvals, and the quality of the information provided.¹⁶

Climate litigation and policy alignment: Climate litigation is an emerging tool that is often influenced by global trends and seeks to make big companies and government bodies responsible for not keeping up with India’s obligations under the Paris Agreement and Nationally Determined Contributions (NDCs). The courts have started to hear cases where the plaintiffs are claiming constitutional rights under Articles 21 and 48-A of the Constitution, which guarantee the right to a clean and sustainable environment. This is a clear indication of how the climate jurisprudence in India is aligning with ESG law and thus establishing a firm basis for corporate accountability in terms of the environment.¹⁷

Judicial trend toward ESG integration: All these decisions together convey the message of a radical change of attitude in which the judiciary no longer regards environmental or social obligations as non-essential but rather as part of the legal responsibilities of corporate management. The courts are therefore seen as the main players in bringing about the integration of ESG concepts into the realm of Indian corporate law across the Board, running compliance with regulation and the practice of ethical governance through judicial supervision.

Challenges and criticisms: Data, costs, and enforcement

It is true that India has made great strides in recognising the ESG principles in corporate governance, but those are still faced with big practical, structural, and enforcement problems. The legislation is very strong, but the question of its implementation, uniformity, and credibility remains. These challenges will have far-reaching effects on corporate accountability, will lower investor confidence, and may even hinder India getting to global ESG benchmarks.

Greenwashing and assurance gaps: The very first thing that India’s ESG regime has to deal with is the poor credibility of the assurance mechanisms. To the extent that SEBI requires an independent review of BRSR core, there is an indication that the assurance standards have not yet been brought into line with the global ones, like those of the ISSB or the European Sustainability Reporting Standards (ESRS). A mixed bag of verifiers doing ESG ratings and issuing certifications has arisen due to the lack of an agreed upon process of accreditation for the companies doing the assurance. This has opened up the door for “greenwashing” — that overstating or faking sustainability performance. Investor trust is being not only eroded but also the very transparency that is the objective of ESG disclosures is undermined.

Operating costs and compliance burden: The ESG compliance cost turned out to be a major problem, especially for small and medium-sized enterprises (SMEs). Industry surveys and studies by sectors (Key ESG, 2024) indicate that nearly half (47 per cent) of the mid-sized firms saw that the costs of setting up ESG data systems, performing audits, and developing reporting infrastructure outweighed the financial benefits for them in the short term. Smaller firms often experience discouragement due to assurance, sustainability audits, and compliance software costs, which lessens their participation and thus creates the imbalanced regulatory environment where big companies have more opportunities than small ones. To this end, the experts proposed a different compliance framework for every particular case and capacity building program for the less endowed companies.

Data reliability and standardisation issues: The very basis of the ESG effectiveness is built upon the accuracy, comparability, and consistency of disclosed data. On the contrary, India is at the moment missing a single taxonomy and sector-specific performance benchmarks for environmental and social indicators. The lack of a common framework to estimate carbon intensity, gender equality, or waste recycling hampers the analysis to some extent between different sectors. Besides, varying reporting methods lead to “purpose-washing”, where companies make insignificant environmental actions look like huge ESG initiative changes by labelling them. This not only makes it difficult for investors to evaluate but also weakens India’s global ESG credibility.

Weak enforcement and regulatory gaps: The lack of proper enforcement is still the weakest point in the Indian ESG ecosystem. Although SEBI and the MCA have issued several regulations, the enforcement of these regulations is mainly based on monetary penalties and compliance through disclosure rather than on substantive accountability. The SEBI Circular dated 11-11-2024 lays down daily penalties for those who fail to submit BRSR reports but does not mention disqualifications of Directors or criminal liability for serious ESG violations. This tolerance in enforcement draws back the deterrence and develops a weak compliance culture across the board. The nonexistence of a central enforcement body also causes overlaps in the jurisdictions of SEBI, RBI, and the Ministry of Environment, Forest and Climate Change (MoEFCC).

Fragmented regulatory landscape: At the present time, the ESG regulatory framework of India is not uniform and is governed by several different laws and legal authorities which include, among others, the Companies Act, 2013, SEBI Regulations, RBI’s climate finance directives, and the Environment (Protection) Act, 1986. As a consequence, it is very hard for companies, especially those that are multinational, to comply with overlapping disclosure requirements and different enforcement thresholds, which cause confusion. Moreover, the absence of a unified ESG law adds to the complexity of compliance thus making it sometimes duplicative, inefficient, and inconsistent across different sectors. So, a harmonised national ESG code or the umbrella legislation has been advocated by the policy experts in order to manage the issues and redundancies effectively and also to bring the Indian regime at par with the global best practices.

Limited ESG literacy and cultural integration: There is still a conceptual gap in ESG understanding among corporate boards and management even in the case of formal compliance. ESG is considered by many companies as a reporting exercise instead of a strategic framework for long-term value creation. The Russell Reynolds Report, 2025, indicates that just 63 per cent of Directors in India’s top 500 listed firms had received formal ESG governance training. This situation of ignorance prevents the integration of ESG into decision-making in a meaningful way and allows the tick-box approach to compliance to continue.

Recommendations

To strengthen India’s ESG ecosystem and ensure its alignment with international standards, a multi-pronged strategy emphasising standardisation, accountability, and capacity building is imperative. The following recommendations outline both structural and procedural reforms that can enhance the effectiveness of ESG governance in India:

1. Establish uniform assurance standards: India should develop a standardised ESG assurance and verification framework benchmarked against global best practices such as the ISSB, ESRS, and GRI. The establishment of an independent national ESG assurance body, under the aegis of SEBI and the MCA, could ensure consistent accreditation and oversight of verifiers. This would mitigate greenwashing, enhance data credibility, and strengthen investor confidence in sustainability disclosures.

2. Invest in digital compliance tools and data infrastructure: The adoption of artificial intelligence (AI)-driven compliance platforms, blockchain-enabled ESG data management, and cloud-based reporting tools can significantly enhance the transparency, efficiency, and cost-effectiveness of ESG compliance. Digital tools can automate data collection, detect anomalies in sustainability metrics, and enable real-time monitoring of environmental and social performance. Initiatives such as digital ESG dashboards and centralised disclosure repositories can help regulators and investors track compliance while reducing manual errors and compliance fatigue for corporations.

3. Harmonise regulatory requirements and enact a unified ESG code: India’s current ESG landscape is fragmented across multiple regulatory instruments. A comprehensive national ESG code or umbrella legislation integrating the Companies Act, 2013, SEBI Regulations, RBI guidelines, and environmental statutes would create uniformity in definitions, disclosure requirements, and enforcement mechanisms. Such a code could also establish cross-sectoral taxonomies and standardise ESG indicators, enabling consistent comparison and reducing compliance duplication. A harmonised framework would position India as a regional leader in ESG governance and facilitate smoother alignment with cross-border sustainability norms.

4. Enhance penalty regimes and accountability mechanisms: Strengthening the enforcement architecture is essential to ensure that ESG obligations are not merely procedural. Regulatory bodies such as SEBI and the MCA should introduce graduated penalties that move beyond monetary fines to include Director-level accountability, temporary disqualification, or public disclosure of non-compliance. Integrating ESG breaches within the ambit of corporate fraud provisions could create stronger deterrents. Additionally, establishing independent ESG grievance redressal mechanisms or ombudsman systems would provide a channel for stakeholders to report non-compliance, ensuring participatory oversight.

5. Capacity building and ESG literacy: ESG compliance is not solely a regulatory process but a cultural and strategic transformation within corporations. To ensure compliance in both letter and spirit, targeted training programs for Directors, compliance officers, and sustainability professionals are vital. Academic institutions, professional bodies like the Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI), and regulators should collaborate to introduce certification courses and continuous learning modules on ESG governance. Enhanced ESG literacy will empower boards to integrate sustainability into core business models and long-term strategy formulation.

6. Promote stakeholder engagement and transparency: Companies should move toward inclusive ESG reporting by actively engaging with employees, investors, and community stakeholders. Transparent, stakeholder-driven ESG frameworks enhance legitimacy and align with global principles such as the SDGs and the UN Global Compact. Periodic sustainability audits and public dialogues on ESG performance can further institutionalise corporate responsibility.

Conclusion

The adoption of ESG ideals by corporate governance has been a watershed moment for India’s law and economy. Initially, the whole process was merely a compliance excise under Companies Act and SEBI’s reporting mandates. Australia’s whole process has now become the linking of sustainability with fiduciary accountability, ethical leadership and long-term value creation through the establishment of a comprehensive framework. India’s path reflects that the ESG issue is not limited to the company’s peripheral obligations but has become the foremost governance aspect that influences global competitiveness and investor trust. However, the scenario has changed: now the main problem is not the abundance of laws, but their proper implementation, integration, and assurance credibility. As India is heading towards global convergence through BRSR core, ISSB alignment and climate-risk disclosure by financial institutions, the fulfilment of this change will rely on the regulation’s ambition getting converted into tangible results smoothly. Besides raising assurance standards, the establishment of digital compliance ecosystems and the promotion of ESG literacy would make it possible for compliance to become not merely a legal requirement but a corporate strategy. In the end, the Indian ESG vision will rest on the establishment of a unified, open, and responsible governance ecosystem that, 1) enables a company to grow and act responsibly at the same time; 2) incorporates sustainability into corporate DNA; and 3) positions India as a major player in the global arena of sustainable business governance.