The article explores the evolving ESG regulatory landscape, comparing global mandates with India’s current framework. It highlights key gaps in compliance, the need for stronger enforcement, and opportunities for India to align with global best practices. Additionally, it examines the role of corporates, investors, and policymakers in driving sustainability through enhanced transparency, governance, and accountability measures.
The movement towards mandatory ESG disclosures in emerging markets is gaining momentum as investors and regulators recognize the importance of environmental, social, and governance (ESG) factors in assessing corporate performance and risk. While the pace of adoption varies across markets, several countries have implemented or are considering mandatory ESG disclosure requirements. These regulatory initiatives are part of a broader effort to enhance transparency, improve corporate accountability, and promote sustainable development. This article explores the evolving regulatory landscape, focusing on key developments and mandates across various countries and stock exchanges.
Globally, the approach to ESG regulation varies significantly, reflecting different priorities and levels of development. In the European Union, the Corporate Sustainability Reporting Directive (CSRD) mandates comprehensive ESG disclosures for large companies, ensuring that they report on their environmental impact, social policies, and governance practices. The United States, through the Securities and Exchange Commission (SEC), has proposed rules requiring listed companies to disclose climate-related risks and their impact on business operations and financial performance. The UK has also made strides with the Financial Conduct Authority (FCA) requiring premium-listed companies to report in line with the Task Force on Climate-related Financial Disclosures (TCFD). These measures are aimed at providing investors with a clearer picture of a company’s sustainability and long-term viability, driving better investment decisions and promoting corporate accountability.
India’s regulatory framework for ESG is still evolving, with significant gaps in several areas. While there are regulations like the Business Responsibility and Sustainability Report (BRSR) mandated by SEBI, many critical aspects of ESG remain underregulated. For instance, there are no specific national laws for greenhouse gas emissions targets, carbon pricing mechanisms, or comprehensive waste management and recycling standards comparable to those in more developed markets. Similarly, regulations on sustainable sourcing and supply chain transparency are largely absent, leaving a significant part of corporate environmental impact unaddressed. Social and governance aspects, such as minimum wage and workplace safety regulations, are more robust but still face implementation challenges and do not always align with international best practices.
Here’s a comparative overview of ESG regulations globally and in India:
| ESG Regulation | Global Scenario | Indian Scenario |
| Climate Change and Emissions | EU: CSRD requires comprehensive climate-related disclosures; US: SEC proposes climate risk disclosure rules; UK: FCA mandates TCFD-aligned reporting | India lacks national laws for greenhouse gas emissions targets and carbon pricing mechanisms. Voluntary compliance with the PAT scheme shows progress. |
| Resource Management | Japan’s Waste Management and Public Cleansing Act mandates proper waste disposal and promotes recycling; Germany’s Circular Economy Act encourages reuse of materials | India has regulations like the Water Act and Solid Waste Management Rules. The E-Waste (Management) Rules show progress in electronic waste management. |
| Product and Supply Chain Regulations | Brazil: National Solid Waste Policy focuses on waste reduction and recycling | India’s regulations on product sustainability and Extended Producer Responsibility (EPR) for e-waste and plastic exist but need strengthening. Efforts in circular economy initiatives are growing. |
| Labor Standards | ILO conventions guide global labor practices; stringent enforcement in EU and North America Australia: Modern Slavery Act requires companies to report on modern slavery risks | Labor laws, including the Code on Wages and Occupational Safety, face challenges in enforcement. Initiatives like the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) are positive steps. |
| Human Rights | Strong frameworks in EU (e.g., EU Charter of Fundamental Rights); US and Canada have stringent anti-trafficking laws | Child Labor and Bonded Labor Acts are comprehensive but face significant implementation challenges. The National Human Rights Commission actively works on these issues. |
| Community Impact | Comprehensive EIA requirements in South Africa and Brazil; strong public consultation mechanisms | EIA Notification mandates public consultation. The Ministry of Environment, Forest and Climate Change (MoEFCC) works on improving community impact assessments. |
| Corporate Governance | US: Sarbanes-Oxley Act for corporate governance; South Africa: King IV Report on Corporate Governance | Companies Act mandates board diversity and executive accountability. The introduction of independent directors is a positive move. |
| Transparency and Reporting | Global Reporting Initiative (GRI) and IIRC frameworks widely adopted; mandatory in EU, Brazil | BRSR is a step towards mandatory ESG reporting but needs to expand its comprehensiveness. |
| Anti-Corruption and Ethical Conduct | OECD Anti-Bribery Convention guides global practices; strong enforcement in US (FCPA) and UK (Bribery Act) | Prevention of Corruption Act and Whistleblowers Protection Act are robust on paper. The Lokpal and Lokayuktas Act aims to curb corruption. |
India’s current ESG regulatory framework highlights the need for significant improvements to align with global standards. In several areas, there are no regulations, while in others, regulations exist but enforcement and compliance are weak.
To enhance and strengthen regulatory compliance in India, a multi-faceted approach is essential. First, adopting comprehensive national legislation, akin to global best practices, while considering the country’s unique socio-economic context, can provide a balanced approach to sustainable development. Integral to this is the need for mandatory non-financial ESG disclosures, which are crucial for corporate transparency. These disclosures offer stakeholders a complete view of a company’s efforts and impacts beyond profits and losses, enabling them to make informed decisions and hold companies accountable for their sustainability commitments. This level of transparency is essential for fostering a more sustainable and responsible business environment.
The onus is not just on the government. Other stakeholders also play a pivotal role in this evolving landscape. Corporates must take proactive steps in incorporating ESG principles into their business models. Investors should prioritize sustainability in their investment decisions. Civil society should advocate for greater transparency and accountability. This collaborative approach ensures that the transition to a sustainable future is inclusive and effective.
By adopting these measures, India can significantly enhance its ESG regulatory framework, thereby fostering sustainable development and ensuring that its corporate sector plays a pivotal role in the global sustainability movement.
Strengthening these regulations not only benefits the environment and society but also improves India’s attractiveness to global investors, fosters long-term economic growth, and aligns the nation with the global move towards a more sustainable future. This commitment to ESG principles will help India secure a leadership position in the global sustainability landscape.
Ayush Patodia
Ayush Patodia serves as the Associate Vice President at Avalon Consulting, bringing over eight years of experience in strategy development and implementation, with a proven track record of delivering measurable results. He is adept at tackling complex challenges and is recognized for his expertise through contributions to leading business publications. Ayush holds an MBA in International Business from the Indian Institute of Foreign Trade and a Bachelor’s Degree in Chemical Engineering from Sathyabama Institute of Science & Technology, reflecting a strong foundation in both technical and business disciplines.
Asawari Hande
Asawari Hande is a Strategy Consultant at Avalon Consulting with a strong background in business strategy and implementation. She holds an MBA from IIM Tiruchirappalli and a B.Tech in Production Engineering from VJTI Mumbai. Asawari has extensive experience in sustainability, product and brand management, pricing strategy, and digital transformation across various industries, including IT, automobile, and construction materials. She has successfully led projects in sustainability benchmarking, strategic acquisitions, and digital maturity assessments. Asawari is passionate about entrepreneurial roles and has a proven track record in driving business growth and innovation.
