Emerging Corporate Governance Issues and Litigation Risks Due to ESG Norms: Striking A Balance Between Regulated Entities and Corporations

Abstract

The growing interest of investors and global awareness of environmental, social, and governance (ESG) risks are reshaping corporate priorities. Firms face increasing pressure from investors, employees, suppliers, customers, and governments to integrate ESG considerations into their operations, implement mitigation measures, and report progress transparently. ESG performance is broadly categorized into three pillars: environmental, social, and governance, and it has become a key metric for evaluating a company’s broader impact beyond financial returns. In India, no specific ESG due diligence criteria or legislation mandating ESG compliance exists. The “environmental” aspect of ESG is covered indirectly under the Environment Protection Act of 1986 and various other environmental legislations. The “Social” aspect is, largely covered under the Consumer Protection Act
2019, Prevention of Money Laundering Act, 2002, Prevention of Corruption Act, 1988 etc. Lastly, the “Governance” aspect of ESG is covered under the Companies Act, 2013, SEBI regulations, the SARFESI Act and various other company law legislations. Further, environmental, Social, and Governance (ESG) principles are reshaping corporate finance, with Regulated Entities (REs) playing
a pivotal role in advancing net-zero financing and sustainable investments. As ESG regulations evolve, corporations face increasing pressure to integrate sustainability while managing financial viability. India’s regulatory landscape primarily includes the Business Responsibility and Sustainability Report (BRSR) and SEBI’s Green Bond Principles. This enhances transparency and accountability. However, challenges such as greenwashing risks, regulatory inconsistencies, and rising ESG-related litigation
create complexities for businesses and financial institutions. Strengthening governance, streamlining ESG disclosures, and fostering sustainable finance mechanisms are critical to mitigating these risks. Despite the hurdles, the transition towards green finance presents significant opportunities for economic growth and investor confidence. By aligning corporate strategies with sustainability goals and ensuring robust policy frameworks, India can bridge its ESG investment gap, support ethical financing, and accelerate its path to a net-zero economy.