ESG: Boardroom Mandate Or Cheap Publicity?

As early as 2022, Ricardo Viana Vargas, a Brazilian engineer and author of multiple books on management, wrote for the London School of Economics with a thought-provoking question – “whether marketing was killing ESG?”.

Two professors from Tufts and Boston, wrote an article in the Harvard Business Review on the insanity of expecting capitalism to help solve the world's problems with an impressive headline that read - “ESG investing isn't designed to save the planet!”

Analyst and broking firms for eons have written beautiful prose on why and how ESG compliance matters. However, a very thin line differentiates “disclosure” from “diligence”.

Imagine a leader stating that the business would grow 15% next quarter. But the leader also provides another correlating statement in the fine-print. That the organisation was chopping five-hundred trees, firing 500 women belonging to a specific caste, and using water from a river that is a potable source of drinking water to ten adjacent villages.

Would leaders ever make such disclosures? Would the investing world hail such professionals as leaders?

While the world needs ideal leaders; idealism does not help retain the top boardroom honors for long. Evolution of Environmental, social, and governance (ESG) frameworks have improved considerably in recent times. These are in line with the regulatory landscape too. However, they are far from inspiring true change in boardrooms. A part of society believes that self-rated documents would help construct a better world.

There are three challenges with this assumption:

1. ESG has become a game of too many variables.
2. Lack of a validating authority to scrutinize claims – Greenwashing problem.
3. Lack of motivation for ESG compliance in global world.

Too Many Indicators Spoiling Broth?

Universal ESG indicators include: greenhouse gas emissions (Scope 1, 2, and 3), energy consumption, water usage, waste generation, employee diversity ratios, board diversity, executive compensation ratios, anti-corruption policies, supply chain labor practices, cybersecurity measures, data privacy compliance, community investment, tax transparency, biodiversity impact assessments, and human rights due diligence processes.

Regulatory compliance with several such ESG indicators is not only time-consuming for the legal teams of such enterprises; but also impossible for a human to keep track across multiple jurisdictions, varying levels of complexity, and the challenge of multiple variables. In many cases, business logic moves inversely from science. For instance, the presumption that afforestation works is in stark contrast to science which claims that even planting a million trees would not be sufficient to offset the damage done by destructing sensitive forests. The variables for one indicator may not apply on the other.

To credit regulators, there has been work on making ESG disclosures compulsory. The Securities and Exchange Board of India (SEBI) added environmental, social and government (ESG) metrics for mandatory disclosure under 'BRSR Core' for 1000 companies in India in July 2023. BRSR framework mandates top-listed entities to disclose quantitative data across 27 key performance indicators, creating legally binding obligations for sustainability reporting. SEBI has also amended Credit Rating Agencies Regulations in 2025, introducing key modifications for ESG rating providers.

ESG ratings have also been witnessed as part of Companies Act, 2013 under Section 135, to meet CSR committees. The statutory mandate of a minimum of 2% of average net profits toward prescribed CSR activities creates a direct board-level accountability for sustainability initiatives. Non-compliance resulting in monetary penalties and potential disqualification of directors. The penalties range not in crores but in thousands and on a per-day basis in cases where companies are on the erring side.

India has several laws to keep a check on ESG – greenhouse gas emission intensity target (GEI), Environmental Impact Assessment (EIA) Frameworks etc. But, India's ESG regulatory landscape remains fragmented across multiple agencies and jurisdictions. SEBI, MCA, RBI, and various environmental agencies each maintain separate requirements, creating compliance complexities and potential conflicts. This fragmentation undermines comprehensive ESG governance and creates regulatory arbitrage opportunities. These amendments mandate comprehensive disclosure of environmental risks, potential mitigation measures, and long-term sustainability strategies, creating additional layers of corporate accountability.

Global Flip-Flops Persist

The assumption that investors (PE, Mutual Fund houses, and even retail investors) care about institutional guard-rails such as ESG is complex to determine. Each investor category, at the end of the trading session, scrutinizes the financial efficiency and performance of a company stock or its financial numbers. Not ESG per se. And with penalties out of sync with ground realities, even the well-heeled institutions who fulfill all parameters do not have a clear edge or moat in an unequal field with their competition. To make matters worse, global flip-flops dent even those organisations that are well-heeled and well-meaning.

The international regulatory landscape already demonstrates increasing volatility in ESG disclosure requirements, with jurisdictions oscillating between mandatory and voluntary frameworks. In the US, for instance, ESG norms have gone to the back-burner since the elections. US-SEC has already halted disclosure norms for American firms; a Harvard Law school case-study highlighted the rise of an anti-ESG movement as early as 2024. A jurisdiction which shows some hope is the European Union.

The European Union's Corporate Sustainability Reporting Directive (CSRD) and mandatory ESG reporting framework requires detailed disclosures on sustainability matters, including climate-related risks, social impacts, and governance practices. But a single jurisdiction mandating mandatory reporting structure only adds to complexity in matters of compliances. It prompts Indian companies with international operations to navigate multiple regulatory frameworks.

Beyond this complexity, there is the persisting challenge of a lack of institutional support. Limited technical expertise, inadequate infrastructure for data collection and verification, and competing commercial priorities often undermine effective ESG compliance. This institutional weakness creates enforcement gaps that regulatory frameworks alone cannot address.

Moving Beyond The Challenge

Indian business and legal-teams need to understand the value of adhering to ESG norms. Irrespective of whether ESG movement exists or perishes, jurisdictions could continue with evolving standards. For instance, in international trade settings, carbon border adjustments and sustainability requirements are a mandate. The European Union's Carbon Border Adjustment Mechanism (CBAM) exemplifies this trend, imposing carbon-related duties on imports from countries with less stringent climate policies.

Post the India-UK FTA (signed 45 days ago), there has been a growing discussion among exporters and many corporate houses about ways to enhance carbon footprint management to maintain competitive positioning in global markets. While one gets to witness enforceability gaps, and accounts of greenwashing (misleading disclosures), we need ESG to emerge as a crucial agenda at the boardroom. Institutions such as The IFSCA's fund management regulations incorporate ESG considerations into investment management frameworks, requiring fund managers to disclose ESG integration approaches and sustainability-related investment strategies. But more can be done.

The ESG debate isn't just about temperature targets anymore. India will have to navigate it without losing focus or footing. ESG needs to transition from voluntary disclosure to enforceable mandate. Corporate boards would thus be well-advised to anticipate this progression and embed ESG into at least the core governance frameworks.

Akshat Khetan Founder at AU Corporate Advisory and Legal Services (Twitter @akshat_khetan). Views are personal.