IAS Gyan

Daily News Analysis


22nd December, 2022 Economy

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  • Indian Institute of Corporate Affairs has launched a program to create Impact Leaders in the areas of Environmental-Social-Governance (ESG).

What is ESG and why is it important?

  • “Environmental, Social and Governance” (“ESG”) refers to a set of criteria to determine how a company performs in preserving the natural environment, managing relationships with its stakeholders, and also how it deals with matters including the company’s leadership, internal controls, and shareholder’s rights. These standards are used by socially and environmentally conscious investors to screen their potential investments.
  • Environmental, social, and corporate governance (ESG) is a strategic framework for activities ranging from the company’s carbon footprint and commitment to sustainability to its workplace culture and commitment to diversity and inclusion to its overall ethos regarding corporate risks and practices.
  • It’s an organizational construct that’s become increasingly important, especially to socially responsible investors who want to invest in companies that have a high ESG rating or score.

Pillars of ESG

The three main pillars of ESG include:

  • Environmental commitment: This includes everything around a company’s commitment to sustainability and the impact it has on the environment, including its carbon emissions and footprint, energy usage, waste, and environmental responsibility.
  • Social commitment: This covers a company’s internal workplace culture, employee satisfaction, retention, diversity, workplace conditions, and employee health and safety. Companies with happy and healthy employees perform better and are viewed as a stronger investment.
  • Corporate governance: A company’s commitment to governance includes compliance, the internal corporate culture, pay ratios, the company ethos, and transparency and accountability in leadership. Investors are interested in companies that can keep up with changing laws and regulations, and that have a commitment to equity and equality in the workplace.


ESG Legal Regime in India

  • While there are various laws that have been introduced in India for the protection of the environment, equitable treatment and overall well-being of employees and for corporate governance, there has not been any single piece of legislation covering all elements of ESG or standards for ESG related criteria on a uniform basis. 
  • Even though in the last 10-12 years, various initiatives have been introduced to focus on ESG-related compliances, this has been done in a fragmented manner and often on a voluntary basis.
  • But in India, if we talk about sustainability, there have been two watershed moments—Corporate Social Responsibility (CSR) reporting and spending, the first such initiative globally, being made mandatory under the Companies Act, 2013; and the Securities and Exchange Board of India (SEBI) making the Business Responsibility and Sustainability Report (BRSR) mandatory for the top 1,000 listed companies by market capitalization.  
  • The setting up of the Select Focus Group (SFG) by the RBI, recognition by RBI of the importance of green finance in India, and release of a consultation paper by SEBI on 'Environmental, Social and Governance Rating Providers for Securities Markets' that proposes a framework to regulate ESG rating providers in India make it amply clear that the Indian regulatory authorities are now catching up on the ESG trends that have been ongoing at a global level.


Need for legislation on ESG

  • As the hope of restricting global warming to 1.5 degrees Celsius recedes rapidly, there is a dire need for companies to reorganize their business processes to contain the worst excesses of climate change.
  • The value that ESG creates for businesses as consumers become more aware of their carbon footprint and its potential positive impact on business performance.
  • Studies prove that a focus on ESG helps organizations increasingly access new pools of capital, build a strong reputation among consumers and ensure a sustainable growth path — from policymakers, and consumers to investors, ESG matters to all.
  • Although the attention paid to ESG by Indian companies is on the rise, it is still not sufficient. A possible solution would be to include ESG related regulations in the Indian Companies Act, 201370, to give ESG the importance and enforcement mechanisms that requires in order to reduce the environmental and social risks that India is currently facing.


About IICA

Indian Institute of Corporate Affairs is an autonomous institution under the aegis of the Ministry of Corporate Affairs for the central civil servants of the Indian Corporate Law Service cadre. It was established in 2008 at Manesar, Haryana. It is the sole institution in the country that has been authorized by Insolvency and Bankruptcy Board of India to run its flagship Graduate Insolvency Program. It gives policy support to the government for CSR and organizes various training programs in CSR. It also provides various services to Corporates for CSR including Impact Assessment, Needs Assessment, Baseline survey, Real-time monitoring etc. It also houses the training academy of top cadre of Indian Corporate Law Service.