Tag: corporate-social-responsibility

A guide to India’s legal framework for ESG

ESG stands for Environmental, Social, and Governance. ESG investing evaluates companies on non financial factors covered under any of these three categories. While many issues are multifaceted and may fall under one or more of these headings, the way to differentiate them may lie in separating into the Planet, People, and Profit maxim: E covers all issues that affect the planet, S is for anything affecting humans directly, and G (the most regulated of the three) is for corporate governance issues.

India has a web of laws, regulations, and policies that can be classified as ESG requirements or enablers (now that the acronym ‘ESG’ exists, that is). Here is a run down of some of the most prominent ones (it’s long):

I. Environmental Legal Requirements in India

1. Wildlife (Protection) Act, 1972
This Act provides a legal framework for the protection of wildlife species and their habitats, including the creation of protected areas such as national parks and wildlife sanctuaries. It prohibits hunting and trade in endangered species, and prescribes penalties for violations. The Act also empowers authorities to regulate activities within protected areas to conserve biodiversity.

2. Water (Prevention and Control of Pollution) Act, 1974
The Water Act is designed to prevent and control water pollution and maintain or restore the wholesomeness of water. Section 16 tasks the Central Pollution Control Board with setting standards for the discharge of pollutants into water bodies, monitoring compliance, and coordinating with state boards. The Act provides for the prosecution of violators and the issuance of directives to polluting entities to cease or modify operations.

3. Forest (Conservation) Act, 1980
The Forest (Conservation) Act restricts the diversion of forest land for non-forest purposes without prior approval from the central government. It aims to curb deforestation and promote sustainable forest management by requiring compensatory afforestation and environmental impact assessments for approved projects. The Act also provides for the protection of forest biodiversity and the rights of forest-dwelling communities.

4. Air (Prevention and Control of Pollution) Act, 1981
This Act establishes a regulatory framework for the prevention, control, and abatement of air pollution in India. Section 17 assigns State Pollution Control Boards the responsibility to set air quality standards, monitor emissions from industrial and vehicular sources, and enforce compliance through permits and penalties. The Act empowers authorities to close or restrict operations of polluting industries and to promote cleaner technologies.

5. Environment (Protection) Act, 1986
The Environment (Protection) Act, 1986, is India’s primary legislation for the protection and improvement of the environment. Section 3 of the Act empowers the central government to take all necessary measures to protect and improve environmental quality, prevent and control pollution, and set standards for emissions and discharges. Section 6 authorizes the government to make rules for regulating environmental pollution, covering aspects such as waste management, hazardous substances, and the preservation of ecological balance.

  1. Key Rules under the Environment (Protection) Act:
  • E-Waste (Management) Rules, 2022:
    These rules establish responsibilities for manufacturers, producers, and recyclers of electronic and electrical equipment to ensure environmentally sound management of e-waste. They require the implementation of extended producer responsibility, mandating producers to collect and channel e-waste to authorized dismantlers or recyclers. The amendments in 2018 further tightened collection targets and reporting obligations, aiming to reduce the environmental impact of rapidly growing electronic waste streams.
  • Battery Waste Management Rules, 2022:
    The 2001 rules regulate the collection, processing, and recycling of used batteries to prevent hazardous lead and acid pollution. The Draft Battery Waste Management Rules, 2020, propose stricter norms for battery producers, including mandatory take-back systems and environmentally safe recycling processes. These provisions are designed to minimize environmental contamination and promote circular economy practices in the battery industry.
  • Bio-Medical Waste Management Rules, 2016:
    These rules provide a framework for the safe handling, segregation, transport, treatment, and disposal of biomedical waste generated by healthcare facilities. They impose strict requirements on hospitals and clinics to ensure that infectious and hazardous waste does not contaminate the environment or pose health risks to the public. Compliance is enforced through regular audits and penalties for violations.
  • Plastic Waste Management Rules, 2016, 2021, 2022:
    The rules aim to reduce plastic pollution by imposing restrictions on the manufacture, sale, and use of certain single-use plastics. They require producers, importers, and brand owners to implement extended producer responsibility, ensuring that plastic waste is collected and recycled or disposed of in an environmentally friendly manner. Amendments in 2021 and 2022 further expanded the scope of regulated items and tightened compliance timelines. The 2022 notification banned Single Use Plastics (SUPs) with effect from 01.07.2022.
  • Solid Waste Management Rules, 2016:
    These rules set out the responsibilities of municipal authorities and other stakeholders for the segregation, collection, processing, and disposal of solid waste. They emphasize the need for source segregation of biodegradable and non-biodegradable waste, and promote composting, recycling, and waste-to-energy initiatives. The rules also mandate the inclusion of informal waste pickers into the formal waste management system.
  • Construction and Demolition Waste Management Rules, 2016:
    The rules require generators of construction and demolition waste to segregate and store waste at source, and ensure its safe transportation to recycling facilities. They promote the recycling and reuse of debris, reducing the burden on landfills and conserving natural resources. Local authorities are tasked with establishing collection centres and monitoring compliance.
  • Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 (amended 2019):
    These rules regulate the generation, handling, storage, transportation, and disposal of hazardous wastes, including their import and export. They mandate that hazardous waste be handled only by authorized operators and in accordance with prescribed safety standards. Amendments in 2019 strengthened provisions for tracking and reporting waste movements, and aligned Indian regulations with international conventions.
  • Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989:
    These rules govern the safe manufacture, storage, and import of hazardous chemicals, requiring companies to undertake risk assessments and prepare on-site and off-site emergency plans. Facilities must notify authorities about the quantities and types of hazardous chemicals handled, and are subject to regular inspections. The aim is to prevent industrial accidents and minimize risks to workers and the surrounding community.
  • Coastal Regulation Zone Notification, 2019; related 2021 procedures:
    The notification demarcates coastal regulation zones and restricts certain activities to protect sensitive coastal ecosystems. It sets out guidelines for permissible development, conservation of mangroves, and protection of traditional fishing communities. The 2021 procedures clarify compliance requirements and streamline the approval process for coastal projects.
  • Environment Impact Assessment (EIA) Notification, 2006 (and amendments):
    The EIA Notification requires prior environmental clearance for specified categories of projects, based on a detailed assessment of their potential impacts. It mandates public consultations, expert appraisal, and periodic monitoring to ensure compliance with environmental safeguards. Amendments over the years have sought to balance developmental needs with environmental protection by refining project categories and timelines. A draft considered controversial was tabled in 2020 which is still under review, and nothing major has been finalised as of writing this.

6. Public Liability Insurance Act, 1991
This Act requires owners handling hazardous substances to take out insurance policies to provide immediate relief to victims of accidents. It ensures that compensation is available for injury, death, or property damage resulting from hazardous activities, regardless of fault. The Act also establishes an Environmental Relief Fund to support compensation payments.

7. Energy Conservation Act 2001 (amended 2022)
The original Energy Conservation Act, 2001 established the Bureau of Energy Efficiency (BEE) and set norms for energy efficiency in appliances, buildings, and large energy consumers. The 2022 amendment (which came into effect on 01.01.2023), establishes a legal basis for a carbon market, mandates non-fossil energy use by designated users, expands efficiency standards, and updates building codes.

8. Biological Diversity Act, 2002
The Biological Diversity Act promotes the conservation of India’s biological diversity and the sustainable use of its components. It establishes mechanisms for equitable sharing of benefits arising from the use of genetic resources, and regulates access to biological resources by domestic and foreign entities. The Act is implemented through the National Biodiversity Authority and State Biodiversity Boards.

9. National Green Tribunal Act, 2010
The National Green Tribunal Act establishes a specialized tribunal for the expeditious resolution of environmental disputes involving multi-disciplinary issues. The Tribunal has the power to provide relief, compensation, and restitution of damaged environments, and its orders are binding. It aims to ensure effective and speedy environmental justice for affected parties.

10. Policies and Schemes

  • Carbon Credit Trading Scheme, 2023
    The Carbon Credit Trading Scheme, 2023, introduces a regulated market for trading carbon credits in India. It enables entities that reduce their greenhouse gas emissions below prescribed targets to sell credits to those exceeding their limits. This market-based mechanism incentivizes emission reductions and supports India’s climate change commitments. This scheme is now operational under the Energy Conservation Act (amended 2022).
  • Green Credit Disclosures (SEBI LODR, BRSR Principle 6)
    From the financial year 2024-25, listed companies are required to disclose the green credits they generate or procure, as well as those of their top-10 value chain partners. This disclosure is part of the Business Responsibility and Sustainability Reporting (BRSR) framework and aims to increase transparency and accountability in corporate environmental performance.
  • Priority Sector Lending for Renewable Energy (RBI Guidelines)
    The Reserve Bank of India’s guidelines on priority sector lending encourage banks to finance renewable energy projects by including them in their priority lending targets. This policy aims to boost the adoption of clean energy technologies and help India meet its renewable energy goals. Loans are extended to enterprises and households for investments in solar, wind, and other renewable energy sources.
  • Green Deposits Framework (RBI)
    The Green Deposits Framework, introduced by the RBI, requires regulated entities to establish board-approved policies for the allocation of green deposits. These deposits are earmarked for financing environmentally sustainable projects, such as renewable energy, clean transportation, and waste management. The framework aims to channel financial resources into projects that contribute to environmental sustainability.

II. Social Legal Requirements in India

1. Human Rights Laws (Constitutional Provisions)
The Indian Constitution enshrines a broad range of fundamental rights that form the foundation of social legal requirements. Articles 14 to 18 guarantee equality before the law and prohibit discrimination based on religion, race, caste, sex, or place of birth, ensuring all citizens are treated fairly. Article 19 protects freedoms such as speech, association, and movement, while Article 21 guarantees the right to life and personal liberty, which courts have interpreted to include the right to livelihood and humane working conditions.

Articles 23 and 24 prohibit trafficking, forced labour, and child labour in hazardous industries, reflecting India’s commitment to protecting vulnerable populations. Article 46, a Directive Principle, directs the State to promote the educational and economic interests of Scheduled Castes, Scheduled Tribes, and other weaker sections, and to protect them from social injustice and exploitation. These provisions are supported by a range of statutes and enforcement mechanisms to ensure compliance and redressal.

2. Protection of Human Rights Act, 1993
The Protection of Human Rights Act, 1993, establishes the National Human Rights Commission (NHRC) and State Human Rights Commissions to investigate human rights violations and promote awareness. The NHRC has powers to inquire into complaints, intervene in court proceedings, and recommend remedial action to the government.

3. Labour Laws

  • Payment of Wages Act, 1936:
    The Act mandates the timely payment of wages to workers, typically by the last working day of the month. It prohibits unauthorized deductions and provides for the resolution of wage-related disputes through designated authorities.
  • Minimum Wages Act, 1948:
    This Act ensures that workers receive at least the minimum wage fixed by the government for different sectors and regions, preventing exploitation and poverty. It also regulates working hours, overtime pay, and conditions of work, contributing to the well-being of the labor force. Enforcement is carried out through labor inspectors and penalties for non-compliance.
  • Employees State Insurance Act, 1948 and Employees’ Provident Fund and Miscellaneous Provisions Act, 1952:
    These Acts provide social security benefits to workers, including retirement savings, medical care, and insurance against sickness, disability, and death for workers and their families. Employers and employees contribute to provident fund and insurance schemes, which are managed by statutory bodies.
  • Factories Act, 1948 & Shops and Establishment Act, 1960:
    These laws regulate working conditions in factories, shops, and commercial establishments, setting standards for health, safety, welfare, and leave entitlements. They require employers to provide safe workplaces, adequate ventilation, and sanitation facilities, and to limit working hours to prevent overwork. The Acts mandate regular inspections and empower authorities to enforce compliance.
  • Maternity Benefit (Amendment) Act, 2017:
    The Act provides for six months of fully paid maternity leave for women employees, as well as additional leave for miscarriage or medical termination of pregnancy. It also requires employers to provide nursing breaks and crèche facilities for young children.
  • Labour Codes (2019–2020):
    44 labour laws have been consolidated into four codes: Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code to streamline compliance, reduce complexity, and increase worker protection, including for gig and platform workers.

4. Gender and Social Equity Laws

  • Protection of Civil Rights Act, 1955:
    Also known as the Untouchability Offences Act, this law abolishes untouchability and protects the civil rights of marginalized communities. It prohibits discrimination in access to public places, services, and employment, and provides for the prosecution of offenders.
  • Equal Remuneration Act, 1976:
    This Act mandates equal pay for equal work for men and women, addressing gender-based wage discrimination in the workplace. It prohibits employers from discriminating in recruitment, promotion, and conditions of service on the basis of gender. The Act is enforced through labor authorities and provides remedies for aggrieved employees.
  • Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989:
    The Act defines specific offences against members of Scheduled Castes and Scheduled Tribes, including violence, humiliation, and social boycott. It establishes special courts for the speedy trial of cases and prescribes stringent penalties to deter discrimination and atrocities. Amendments have expanded protections for women and strengthened enforcement mechanisms.
  • Maintenance and Welfare of Parents and Senior Citizens Act, 2007:
    This Act obligates children and heirs to provide maintenance for their parents and senior citizens, ensuring their welfare and dignity in old age. It establishes tribunals for the speedy resolution of maintenance claims and prescribes penalties for neglect or abandonment.
  • The Transgender Persons (Protection of Rights) Act, 2019:
    The Act recognizes the rights of transgender persons and prohibits discrimination in education, employment, healthcare, and access to public services. It provides for the issuance of identity certificates and mandates the establishment of welfare schemes and grievance redressal mechanisms.
  • Medical Termination of Pregnancy (Amendment) Act, 2021; Assisted Reproductive Technology (ART) Regulation Act, 2021; Surrogacy Regulation Act, 2021:
    These laws expand access to safe and legal abortion services, regulate assisted reproductive technologies, and ban commercial surrogacy while allowing altruistic surrogacy for Indian citizens.

III. Governance Legal Requirements in India

1. Companies Act, 2013

  • Section 149:
    This section requires certain classes of companies to have a specified number of independent directors, including at least one female director, on their boards. Independent directors are expected to bring objectivity and balance to board decisions, and to safeguard the interests of minority shareholders and other stakeholders.
  • Section 166:
    Section 166 outlines the duties of company directors, mandating them to act in good faith and in the best interests of the company, its employees, shareholders, the community, and the environment. Directors must avoid conflicts of interest and act with due care, skill, and diligence in discharging their responsibilities.
  • Section 134:
    This section requires the Board of Directors to prepare an annual report that includes information on the company’s financial performance, conservation of energy, and other ESG-related disclosures. The report must be presented to shareholders at the annual general meeting and filed with the Registrar of Companies.
  • Section 178:
    Section 178 mandates the constitution of Nomination and Remuneration Committees and Stakeholders Relationship Committees for companies with more than 1,000 security holders. These committees oversee the appointment and remuneration of directors and resolve grievances of shareholders and other stakeholders.
  • Schedule IV:
    Schedule IV sets out the code of conduct for independent directors, emphasizing their role in safeguarding the interests of all stakeholders, particularly minority shareholders. It requires independent directors to ensure the company has adequate vigil mechanisms, report unethical behavior, and balance conflicting stakeholder interests.

2. Corporate Social Responsibility (CSR) Requirements (Section 135 and Schedule VII)

Applicability and Committee Formation
Section 135 of the Companies Act, 2013, mandates that every company, including its holding and subsidiary companies, and certain foreign companies operating in India, must comply with CSR requirements if they meet any one of the following financial criteria during the immediately preceding financial year:

  • Net worth of ₹500 crore or more;
  • Annual turnover of ₹1,000 crore or more;
  • Net profit of ₹5 crore or more.

Such companies must constitute a Corporate Social Responsibility Committee of the Board, with at least three directors (including one independent director, where applicable). The Committee formulates and recommends a CSR policy, recommends the amount to be spent, and monitors the policy’s implementation.

The 2% CSR Spending Rule
Section 135(5) requires qualifying companies to spend at least 2% of their average net profits made during the three immediately preceding financial years on CSR activities. Net profits are calculated as per Section 198 of the Act. If a company fails to spend the required amount, the Board must specify the reasons in its annual report. Unspent amounts must be transferred to a fund specified in Schedule VII or, for ongoing projects, to a special “Unspent CSR Account” within prescribed timelines, with penalties for default.

Administrative and Reporting Requirements
Administrative overheads for CSR cannot exceed 5% of total CSR expenditure. Any surplus from CSR activities must not form part of business profits and must be reinvested in CSR. Companies must disclose the composition of their CSR Committee and details of CSR activities in the Board’s Report under Section 134(3).

Schedule VII: Eligible CSR Activities
Schedule VII provides an illustrative list of activities for CSR spending, including:

  1. Eradicating hunger, poverty, and malnutrition; promoting health care and sanitation; safe drinking water.
  2. Promoting education, including special education and employment-enhancing vocational skills, especially among children, women, the elderly, and the differently abled; livelihood enhancement projects.
  3. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; old age homes, day care centers; reducing inequalities faced by socially and economically backward groups.
  4. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources, and maintaining the quality of soil, air, and water.
  5. Protection of national heritage, art, and culture, including restoration of buildings and sites of historical importance; setting up public libraries; promotion and development of traditional arts and handicrafts.
  6. Measures for the benefit of armed forces veterans, war widows, and their dependents.
  7. Training to promote rural sports, nationally recognized sports, Paralympic sports, and Olympic sports.
  8. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief, welfare of Scheduled Castes, Scheduled Tribes, other backward classes, minorities, and women.
  9. Contributions to incubators or R&D projects in science, technology, engineering, and medicine, funded by government bodies or public institutions.
  10. Contributions to public-funded universities, IITs, and national research bodies such as DRDO, ICAR, CSIR, and others.
  11. Rural development projects.
  12. Slum area development.
  13. Disaster management, including relief, rehabilitation, and reconstruction activities.

Failure to comply with CSR spending and transfer requirements attracts monetary penalties for both the company and responsible officers.

3. SEBI Regulations (Listing Obligations and Disclosure Requirements—LODR, 2015)
The LODR Regulations, 2015, issued by the Securities and Exchange Board of India (SEBI), establish comprehensive requirements for the governance and disclosure practices of listed companies. They mandate board composition standards, including the presence of independent directors and mandatory committees such as audit and nomination committees. The regulations require prompt disclosure of material events, transparent reporting of related party transactions, and maintenance of a functional company website with investor information.

4. Business Responsibility and Sustainability Reporting (BRSR, BRSR Core)

  • BRSR (2021):
    The BRSR framework, introduced by SEBI, requires the top 1,000 listed companies to disclose their performance on a broad set of ESG indicators, based on the National Guidelines for Responsible Business Conduct (NGRBC). The disclosures cover areas such as ethics, transparency, employee well-being, stakeholder engagement, human rights, environmental stewardship, inclusive development, consumer welfare, and policy advocacy. The aim is to promote responsible business practices and facilitate informed decision-making by investors and stakeholders.
  • BRSR Core (2023):
    BRSR Core is a streamlined subset of the full BRSR, focusing on a core set of key ESG performance indicators tailored for the Indian context. It introduces phased assurance requirements for the top listed companies and their value chain partners, enhancing the reliability and comparability of ESG disclosures. The framework is designed to facilitate benchmarking and assurance, and to drive continuous improvement in ESG performance.

5. Anti-Corruption and Money Laundering Laws

  • Prevention of Corruption Act, 1988:
    This Act criminalizes bribery and corruption in public and private sector transactions, prescribing stringent penalties for offenders. It empowers authorities to investigate and prosecute corruption cases, and provides for the confiscation of ill-gotten assets.
  • Prevention of Money Laundering Act, 2002:
    The Act establishes a legal framework to prevent and penalize money laundering, requiring regulated entities to maintain records, conduct due diligence, and report suspicious transactions. It provides for the attachment and confiscation of proceeds of crime, and empowers enforcement agencies to investigate and prosecute offenders.

If you want me to add anything I’ve missed, please leave a comment about it, and I’ll work on it. Thanks.

References: