ABSTRACT
The exponential rise in Environmental, Social, and Governance (ESG) investing has compelled Indian companies to align their corporate strategies with sustainability objectives. As of early 2024, ESG-focused mutual funds in India manage assets worth over ₹12,300 crore, reflecting the growing investor shift toward ethical portfolios. However, this surge in ESG disclosures has also led to widespread greenwashing—where firms misrepresent or exaggerate their environmental efforts to appeal to stakeholders.
A 2023 Morningstar analysis revealed that only 38% of Indian companies reporting ESG data meet global sustainability benchmarks.Additionally, a 2024 PwC India survey found that 68% of institutional investors in India question the credibility of corporate ESG claims. Despite SEBI’s initiatives, including the Business Responsibility and Sustainability Report (BRSR) and ESG Rating Provider Guidelines, enforcement remains weak, allowing firms to exploit disclosure-based frameworks without genuine environmental accountability.
This paper analyzes the legal gaps in India’s ESG compliance mechanisms, investigates major case studies, and compares international frameworks to highlight the urgent need for regulatory reform. By addressing greenwashing, India can safeguard investor interests, improve corporate governance, and enhance global ESG credibility.
KEYWORDS Greenwashing, ESG Compliance, SEBI BRSR, Sustainability Reporting, Investor Protection, Corporate Governance.
INTRODUCTION
Environmental, Social, and Governance (ESG) frameworks have become foundational to modern corporate governance and investor decision-making. As global awareness around sustainability and ethical business practices rises, companies are under increasing pressure to align their operations with ESG principles. In India, this shift has resulted in a growing emphasis on ESG disclosures and sustainability ratings, particularly among publicly listed entities.
However, alongside this shift has emerged the widespread practice of greenwashing—where companies intentionally misrepresent or exaggerate their ESG performance to appear more environmentally or socially responsible than they actually are. This undermines the credibility of ESG reporting and deceives both investors and the general public.
India’s regulatory architecture, though evolving, is primarily disclosure-based and lacks mechanisms to independently verify ESG claims. Instruments such as SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework and the ESG Rating Providers Guidelines aim to promote transparency, but enforcement and standardization remain key challenges. The absence of stringent legal obligations, independent audits, and penalties for misreporting allows corporations to manipulate sustainability narratives with minimal accountability.
This research paper investigates how legal loopholes in India’s ESG regime facilitate greenwashing, examines major corporate case studies, evaluates investor risk, and compares India’s approach with global best practices. It further proposes recommendations for a more transparent and accountable ESG compliance framework aligned with investor protection and environmental governance.
RESEARCH METHODOLOGY
This research paper adopts a doctrinal and analytical legal research methodology. It primarily relies on the examination of statutory provisions, regulatory frameworks, judicial decisions, and policy documents governing ESG compliance and corporate disclosures in India.
Primary Sources include:
- Legal statutes such as the Companies Act, 2013 and the SEBI Act, 1992;
- Regulatory frameworks issued by the Securities and Exchange Board of India (SEBI), including the Business Responsibility and Sustainability Reporting (BRSR) format³ and the ESG Rating Provider Guidelines (2023);
- Judicial pronouncements and government notifications.
Secondary Sources involve:
- Research articles, journal publications, and white papers on ESG reporting and greenwashing;
- News coverage, corporate sustainability reports, and case commentaries.
Additionally, the paper incorporates comparative legal analysis by evaluating ESG and anti-greenwashing regulations from jurisdictions such as the European Union and the United States.
The methodology also includes case study analysis of selected Indian corporations to illustrate the practical challenges of ESG compliance and the manifestations of greenwashing. Data and statistics are used to support legal arguments and highlight regulatory gaps.
REVIEW OF LITERATURE
The growing prominence of ESG in corporate governance has prompted significant scholarly and regulatory focus on the risks of greenwashing and the need for effective ESG compliance mechanisms.
Scholars such as Prof. Umakanth Varottil have critically analyzed India’s soft-law approach to ESG reporting, highlighting the lack of legally enforceable sustainability obligations. He argues that the voluntary nature of sustainability disclosures in India allows companies to selectively report positive data while omitting adverse impacts, thereby enabling greenwashing.
Dr. Gitanjali Nain Gill discusses the ineffectiveness of self-regulation in ESG and advocates for integrating stricter enforcement mechanisms within India’s corporate legal framework. She draws parallels with the European Union’s Green Claims Directive, which mandates that all environmental claims must be backed by verifiable scientific evidence.
The Organisation for Economic Co-operation and Development (OECD), in its 2023 report, emphasized that fragmented ESG standards across countries hinder comparability and called for mandatory ESG audits to combat misreporting.
At the regulatory level, SEBI has acknowledged challenges in ESG transparency and quality. The 2023 framework for ESG Rating Providers (ERPs) notes issues such as inconsistent methodologies, lack of transparency, and potential conflicts of interest.
Industry research has also contributed to the discussion. The Morningstar Sustainability Rating methodology indicates that only a limited number of Indian firms align with global benchmarks, underscoring the data quality gap in Indian ESG disclosures.
Meanwhile, a 2024 PwC India survey revealed significant investor skepticism, with 68% of institutional investors expressing concern over the authenticity of ESG claims made by Indian companies.
Overall, existing literature underlines the need for a transition from voluntary disclosures to enforceable ESG compliance frameworks supported by standardized metrics, third-party audits, and regulatory oversight.
METHOD
To understand the functioning and failure of ESG compliance in India, this paper analyzes:
1.Legal Framework:
SEBI’s Business Responsibility and Sustainability Reporting (BRSR) Guidelines
In 2021, the Securities and Exchange Board of India (SEBI) introduced the Business Responsibility and Sustainability Reporting (BRSR) framework as a part of its effort to enhance ESG transparency and corporate accountability in India. This framework replaces the earlier Business Responsibility Report (BRR) and is mandatory from FY 2022–23 for the top 1000 listed companies by market capitalization.
1. Legal Mandate and Applicability
- BRSR was mandated under Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR).
- It applies to the top 1000 listed entities (on a comply-or-explain basis starting FY 2021–22 and fully mandatory from FY 2022–23).
2. Structure and Principles
The BRSR format aligns with the National Guidelines on Responsible Business Conduct (NGRBC) issued by the Ministry of Corporate Affairs (MCA), and includes 9 core principles, such as:
- Ethical governance
- Sustainable use of resources
- Respect for human rights
- Promotion of inclusive growth
3. Format of Reporting
The BRSR is divided into three sections:
Part A – General Disclosures
Details about the company’s ownership, structure, operations, CSR activities, and employee demographics.
Part B – Management and Process Disclosures
Covers the governance, policies, and processes followed to implement the NGRBC principles.
Part C – Principle-wise Performance Disclosures
Quantitative and qualitative disclosures under each of the 9 principles. For example:
- Energy consumption (Principle 6),
- Gender diversity (Principle 5),
- Grievance redressal mechanisms (Principle 3).
4. Voluntary BRSR Core Format (2023)
To standardize ESG investing and address greenwashing, SEBI introduced a voluntary ‘BRSR Core’ format in 2023, focusing on Key Performance Indicators (KPIs). These KPIs are:
- Assured by third-party agencies,
- Relevant for ESG rating providers,
- Enforced for top 150 companies in a phased manner.
5. Legal Significance
- Enhances transparency and comparability of ESG data.
- Helps investors evaluate non-financial risks and corporate sustainability.
- Acts as a legal compliance tool under SEBI LODR Regulations.
- Failure to comply may result in penal actions under the SEBI Act, 1992 and Listing Regulations.
6. Limitations
- BRSR is only mandatory for the top 1000 companies; mid-cap and small-cap companies remain outside its ambit.
- The absence of penalties for incorrect ESG disclosures raises concerns of greenwashing.
- Third-party assurance of ESG data is still voluntary (except for BRSR Core KPIs in select companies).
SEBI ESG RATING PROVIDERS FRAMEWORK, 2023 OBJECTIVE:
To regulate the rapidly growing and largely unregulated ESG rating industry in India and prevent greenwashing by ensuring transparency, credibility, and uniformity in ESG ratings.
Key Features:
- Regulatory Authority: SEBI issued this framework under the SEBI (Credit Rating Agencies) Regulations, 1999 by adding Chapter IV-A on ESG Rating Providers (ERPs).
- Registration Mandatory: Every entity intending to provide ESG ratings must register with SEBI as an ERP.
- Eligibility:
- Minimum net worth: ₹10 crore.
- Independence from listed entities and mutual funds they rate.
- Expertise in sustainability analysis and disclosure norms.
- Code of Conduct:
ERPs must maintain independence, avoid conflict of interest, disclose methodologies, and provide rationale for ESG scores. - Transparency Requirements:
- Disclose rating methodology, sector-specific weightages, and KPIs.
- Publish rating history and changes in methodology.
- Assurance Mechanism:
Encourages third-party assurance of ESG data reported by companies, to enhance credibility.
Legal Relevance:
- Aims to prevent arbitrary or misleading ESG ratings which may mislead investors (a form of greenwashing).
- Establishes accountability and oversight over ERPs similar to credit rating agencies.
2. Relevant Provisions of the Companies Act, 2013
The Companies Act provides a legal foundation for ESG-related disclosures and responsibilities.
Section 134 – Board’s Report:
- Companies must disclose information on:
- Conservation of energy
- Corporate Social Responsibility (CSR)
- Risk management and policies
- Financial performance and environmental practices
- Ensures director accountability in disclosing ESG-relevant data.
Section 135 – CSR Provisions:
- Applies to companies with:
- Net worth ≥ ₹500 crore,
- Turnover ≥ ₹1000 crore, or
- Net profit ≥ ₹5 crore.
- Mandatory CSR spending of 2% of average net profits of the last 3 years.
- Must disclose CSR policy and projects in the Board’s Report.
Schedule VII:
Defines CSR areas like:
- Environmental sustainability
- Gender equality
- Protection of heritage and natural resources
Legal Significance:
- Establishes statutory duty of directors for ESG-related practices.
- Makes non-compliance punishable with fines and penalties.
- Provides a legal route for ESG audits and accountability.
CASE STUDIES
Reliance Industries: A Case of High ESG Ratings Amid Fossil Fuel Dependence
Reliance Industries Limited (RIL), one of India’s largest conglomerates, presents a compelling example of the complexity — and potential greenwashing — in ESG (Environmental, Social, and Governance) assessments. Despite its heavy reliance on fossil fuels, RIL has received relatively high ESG ratings from several rating agencies. This raises critical questions about the consistency, transparency, and materiality of ESG evaluations.
1. Environmental Concerns vs. High ESG Ratings
RIL operates the world’s largest oil refining complex in Jamnagar, Gujarat, with a refining capacity of over 1.2 million barrels per day. A significant portion of its revenue still derives from petrochemicals and fossil fuels. Despite this, RIL has been rated “low risk” or “leader” in several ESG indices and ratings. For instance, MSCI has rated RIL AA on ESG performance.
While the company has made announcements on renewable energy transition — such as investing ₹75,000 crore in green energy (solar, hydrogen, and battery storage) by 2030 — its core business operations remain rooted in carbon-intensive industries.
2. ESG Reporting and Disclosures
Reliance publishes detailed sustainability reports aligned with the GRI (Global Reporting Initiative) and SEBI’s BRSR framework. However, there is criticism that such voluntary disclosures often emphasize positive developments (e.g., future clean energy goals) while downplaying environmental externalities like emissions from refineries, water pollution, and industrial waste.
3. Governance and Social Aspects
Governance-wise, RIL scores well due to transparency, board structure, and consistent financial reporting. Social initiatives like digital literacy programs and rural education further enhance its ESG image. However, these positives often overshadow environmental drawbacks in ESG scoring models.
4. Key Greenwashing Risk Indicators
- Mismatch between high ESG ratings and actual carbon footprint
- Reliance on forward-looking green investment promises
- Lack of standardized ESG metrics across rating providers This example illustrates the regulatory concern that without a statutory framework for ESG rating standardization, companies can present a selectively positive ESG image while continuing environmentally harmful practices.
ADANI GROUP: ESG DISCLOSURES VS POST- HINDENBURG SCRUTINY
Background:
The Adani Group, one of India’s largest conglomerates, has made significant claims about its ESG commitments, particularly in renewable energy investments and infrastructure sustainability. It has published ESG reports aligned with global standards such as GRI and SEBI’s BRSR format.
ESG Disclosures:
- Adani Green Energy, a key subsidiary, reports large-scale investments in solar and wind projects.
- Adani Enterprises publishes detailed ESG metrics, including carbon intensity and water usage.
- The Group commits to UN Sustainable Development Goals (SDGs) and climate neutrality in select verticals.
Contradictions and Greenwashing Concerns:
- Post-Hindenburg Report (Jan 2023): The US-based Hindenburg Research accused the Adani Group of stock manipulation and accounting fraud. While the allegations were largely financial, they triggered regulatory scrutiny and raised questions about the credibility of Adani’s ESG disclosures.
- Environmental Impact: Adani’s core operations still heavily rely on coal mining and thermal power (e.g., Carmichael coal mine in Australia), contradicting its clean energy image.
- Social Issues: There have been protests and environmental violations associated with Adani’s port and SEZ projects in India.
Conclusion: The Adani Group’s case reflects how high-level ESG reporting can exist alongside controversial business practices, highlighting the gap between disclosure and accountability.
FMCG COMPANIES: HUL AND ITCs SUSTAINABILITY CLAIMS VS PLASTIC USAGE
Background:
Major FMCG players like Hindustan Unilever (HUL) and ITC regularly project themselves as sustainability leaders through ESG reports and marketing campaigns.
ESG Disclosures and Sustainability Claims:
- HUL:
- Claims 100% plastic neutrality (i.e., collecting and processing more plastic waste than it produces).
- Publishes annual sustainability scorecards citing reduced water usage, emissions, and plastic intensity.
- ITC:
- Reports becoming plastic neutral since 2021.
- Highlights “Well-being Out of Waste (WOW)” initiative and afforestation programs.
Greenwashing Concerns:
- Plastic Waste Reality:
Despite these claims, both companies remain top contributors to plastic pollution in India.
According to Break Free From Plastic (BFFP) 2023 India report, HUL and ITC were among the most common corporate plastic polluters. - Criticism:
Environmental activists argue that plastic neutrality is a flawed metric, as it allows companies to continue producing virgin plastic while offsetting it with recycling, which is inefficient in India due to poor waste segregation.
Conclusion: These examples reflect how voluntary disclosures may mislead stakeholders by overstating sustainability performance and underreporting environmental harm — a textbook case of corporate greenwashing.
COMPARATIVE ESG REGULATION: EU vs USA
EUROPEAN UNION
1. Green Claims Directive (2023 Proposal)
Objective:
To combat greenwashing by regulating how companies make environmental claims about their products and services.
Key Provisions:
- Companies must substantiate all environmental claims (e.g., “climate-neutral”, “eco-friendly”) with scientific evidence.
- Third-party verification is mandatory for green claims made on product packaging, labels, or marketing.
- Generic or vague claims like “environmentally friendly” without clear basis will be banned.
- Applies to all companies operating in the EU market, including non-EU companies.
Purpose:
To protect consumers and ensure truthful sustainability marketing in the internal market.
Penalty for Violation:
Fines, product delisting, and public disclosure of infringement.
2. Corporate Sustainability Reporting Directive (CSRD) (2022/2464/EU)
Effective From:
1 January 2024 (phased implementation)
Replaces: Non-Financial Reporting Directive (NFRD)
Key Features:
- Expands the scope to ~50,000 companies (including large non-EU companies with EU operations).
- Mandatory reporting on ESG risks, environmental impacts, human rights, and governance practices.
- Requires reports to be aligned with European Sustainability Reporting Standards (ESRS).
- Companies must provide audited, digital-tagged ESG data (machine-readable).
Goal:
To enhance corporate transparency and enable investors to make sustainable investment decisions.
UNITED STSTES
1. SEC’s Proposed ESG Disclosure Rules (2022–2024)
Authority:
U.S. Securities and Exchange Commission (SEC)
Key Proposals:
- Climate-related disclosure requirements for public companies under the Securities Act of 1933 and Exchange Act of 1934.
- Disclosures to include:
- GHG emissions (Scope 1, 2, and in some cases, Scope 3)
- Climate-related risks that materially impact financial performance
- Climate-related governance and risk management processes
- Companies must include ESG data in annual Form 10-K filings.
Objective:
To ensure investor protection by requiring accurate, comparable, and material ESG information.
2. Enforcement Powers and ESG Investigations
- The SEC’s Climate and ESG Task Force (launched 2021) investigates misleading ESG disclosures.
- Actionable under Rule 10b-5 for fraud or misstatement in securities filings.
- SEC has already initiated investigations into ESG claims made by asset managers (e.g., Goldman Sachs and DWS Group).
Key Insight:
- Investor participation in the fund fell by 26% between 2022 and 2023.
- This decline coincided with increased scrutiny over “greenwashing” allegations — where companies make misleading ESG claims without backing them up with genuine sustainability performance.
Reasons for Investor Exit:
- Lack of standardisation in ESG scoring and reporting among Indian corporates.
- No legal penalty for misreporting or exaggerating ESG metrics in India.
- Investors began to perceive ESG labels as marketing tools rather than meaningful indicators of corporate responsibility.
- Concerns that the fund portfolio included companies with questionable environmental records, undermining trust.
Implication:
- Indicates that investor confidence is directly tied to the credibility of ESG disclosures.
- Signals a need for stronger regulation and independent ESG audits in India’s fund industry.
2. PwC India 2024 Survey Findings: Institutional Investor Trust Crisis
Key Statistic:
- 68% of institutional investors in India do not fully trust ESG claims made by Indian corporates.
Major Concerns Cited by Investors:
- Greenwashing: Many ESG claims are unverified, vague, or based on voluntary self-reporting without third-party audit.
- Data Quality: ESG disclosures often lack consistency, reliability, and comparability across companies.
- Lack of Enforcement: India has no central ESG regulator, and SEBI’s ESG frameworks (like BRSR) are still evolving and not fully mandatory.
- Board Governance Issues: Investors feel that ESG is still treated as a “tick-box” compliance exercise, not part of core business strategy.
Survey Quote
“Institutional investors are increasingly demanding that ESG metrics be material, assured, and linked to long-term value creation. Current ESG claims lack this linkage.”
Analysis:
What This Means for Indian Markets:
- ESG investment in India is at a crossroads: the growth of ESG funds is being tempered by lack of trust and regulatory gaps.
- This investor skepticism may slow down ESG capital flows unless:
- Regulatory clarity improves (via mandatory assurance, penalties for misreporting).
- Companies adopt globally aligned ESG frameworks.
- Funds are more transparent in ESG scoring methodology and portfolio selection.
Global Comparison:
- In developed markets like the EU or US, investor confidence is higher due to more robust regulatory frameworks (e.g., CSRD, SEC disclosures).
- Indian ESG funds and corporates risk falling behind global ESG capital trends if reforms are not accelerated.
DATA INTEGRATION: ESG SCORES AND EMISSION DISCLOSURE GAPS IN INDIA
1. Divergence in ESG Ratings: Refinitiv, MSCI, Morningstar
ESG rating agencies like Refinitiv, MSCI, and Morningstar evaluate companies on ESG parameters using varied methodologies. However, this has created inconsistency and confusion in the Indian ESG ecosystem.
Case Insight: According to Refinitiv data (2024), over 60% of Indian listed firms that received ESG scores showed discrepancies between self-reported data and independently verified sustainability performance.
- Example: A company may claim zero emissions growth in its annual report but lack third-party verified data to support this.
- Result: Investors receive mixed signals, eroding the reliability of ESG scores.
2. Carbon Emission Reporting Gaps: CDP India 2023
The Carbon Disclosure Project (CDP) India 2023 report revealed a severe lack of transparency among top polluting firms.
Finding: Fewer than 40% of the top 500 polluting companies in India disclosed verified carbon emissions data.
- Many firms either reported estimated or partial emissions (Scope 1 only) or avoided disclosure entirely.
- This undermines India’s climate goals under the Paris Agreement and BharatNet Zero targets by 2070.
Why This Is a Problem
- Lack of verified ESG and emissions data increases the risk of greenwashing.
- Investors cannot make informed ESG-focused decisions without credible, comparable, and consistent disclosures.
- Discrepancies weaken market integrity, reduce ESG fund performance, and can invite regulatory action under laws like the Consumer Protection Act, 2019 (for unfair trade practices) and SEBI (LODR) Regulations.
SUGGESTIONS
- Mandatory Independent Audits
ESG disclosures should undergo third-party audits to avoid self-reporting bias. SEBI can amend BRSR guidelines to make this compulsory, aligning with EU’s CSRD norms. - Penal Provisions for Misrepresentation
Introduce penalties under the Companies Act and SEBI Act for greenwashing or fraudulent ESG disclosures, ensuring corporate accountability. - Standardization of ESG Ratings
SEBI should enforce uniform methodologies and transparent disclosures by ESG rating providers under its 2023 ERP framework. - Green Advertising Regulations
Develop rules (similar to the EU’s Green Claims Directive) to regulate and verify environmental claims made in product marketing and advertisements. - Whistleblower Protection
Amend the Whistleblower Protection Act, 2014 to cover ESG-related frauds and protect insiders who report such misconduct. - Investor Education
Launch SEBI–AMFI campaigns to educate investors about ESG fund risks, ensuring they make informed decisions.
CONCLUSION
The rise of ESG investing in India has opened new avenues for sustainable growth, but it has also created space for deceptive practices like greenwashing. As highlighted through legal analysis, corporate case studies, and investor trends, India’s current regulatory framework—though evolving—lacks the stringency, standardization, and enforcement mechanisms necessary to ensure true ESG compliance.
While SEBI’s BRSR guidelines and ERP framework mark important steps forward, they remain largely disclosure-based and not backed by statutory penalties. Companies continue to exploit this regulatory gap by exaggerating sustainability claims, undermining investor trust and environmental integrity.
To safeguard the credibility of ESG disclosures and protect investor interest, India must move towards a more robust, transparent, and enforceable legal framework. This includes mandatory third-party ESG audits, strict penalties for misrepresentation, and standardization of ESG ratings. Without such systemic reforms, ESG may become more of a corporate buzzword than a meaningful measure of accountability.
NAME- PALLAVI SONI
COLLEGE- GALGOTIAS UNIVERSITY