Separate ESG oversight mechanism unlikely for companies

New Delhi: The government is unlikely to set up a dedicated mechanism for the oversight of ESG (environmental, social and governance) initiatives by companies, as suggested by a parliamentary panel, people familiar with the matter said.

The corporate affairs ministry reckons that various ESG provisions are already built into the Companies Act and their disclosures and violations are accordingly dealt under specific legal provisions, they said. Creating a separate oversight mechanism could raise compliance burden for companies and run counter to the government's efforts to promote ease of doing business, they added.

Late last year, the Parliamentary Standing Committee on Finance had suggested a body within the corporate affairs ministry for monitoring ESG disclosures by companies, ensuring compliance with reporting standards, and introducing penalties for the so-called greenwashing. The panel also pitched for the setting up ESG committees by companies within their boards, along the lines of their audit panels, to ensure such initiatives are effectively implemented.


"The ministry has already made submissions before the committee, detailing its views and explaining the rationale. The committee has taken note of these," said one of the people.

Legal provisions

While there is no specific ESG-related section under the Companies Act, 2013, the law and the accompanying rules have enough such provisions incorporated into them, aligning corporate conduct with sustainability goals, the people said.

The provisions include those on energy conservation, appointment of female directors, prevention of sexual harassment at work places and duties of directors.

For instance, Sec 166(2) of the Act dwells upon the director's role in promoting the company's goals while considering the interests of shareholders, employees, the community and the environment.