Responsible Business Conduct and ESG in India – Best Practices | Emerging Regulation

ESG in India refers to the integration of Environmental, Social, and Governance principles into business practices to promote sustainability and responsible conduct. It encompasses environmental factors like carbon footprint, waste management, and resource efficiency; social aspects such as employee welfare, community engagement, and human rights; and governance practices including corporate ethics, transparency, and board accountability. India has strengthened its ESG framework through guidelines like the National Guidelines for Responsible Business Conduct (NGRBC) and the Business Responsibility and Sustainability Reporting (BRSR) by SEBI. These regulations encourage companies to adopt responsible business practices, align with global standards like the UN Sustainable Development Goals (SDGs), and address challenges like climate change and social inequality, ultimately fostering a sustainable and inclusive business ecosystem in the country.

Table of Contents

1. The Genesis
2. Responsible Governance – From Right to Duties
3. Measurement of Environmental Footprint under Indian Regulatory Mechanism
4. Responsible Procurement – Supply Chain Challenges
5. Sustainable Finance – Key to Business Growth in the New Age of Responsibility
6. ESG Regulations in India – BRSR & Beyond

Check out Taxmann's Embracing ESG in India – Compilation of Case Studies of Torch Bearers, Promoters & Initiators of Change which  is the second volume in the IICA Corporate Excellence Series with Taxmann. This book analyses the innovative ESG initiatives by Indian companies, featuring case studies and insights from government and international organisations. It is a strategic handbook for corporate professionals, ESG practitioners, and stakeholders, providing practical examples and a comprehensive view of India's evolving ESG landscape.

1. The Genesis

The ‘National Conference and Exhibition on Responsible Business Conduct: Embracing ESG in India’ was held from 14-15 December 2023, at the India Habitat Centre, New Delhi. The conference stood as a testament to the commitment and dedication of the School of Business Environment of Indian Institute of Corporate Affairs (SBE-IICA) towards fostering a sustainable, inclusive, and ethical business ecosystem in India.

The Indian Institute of Corporate Affairs (IICA) is a premier autonomous institution under the Ministry of Corporate Affairs, Government of India. Through its dedicated School of Business Environment (SBE), it focuses on promoting the responsible business ecosystem in the country. The SBE is emerging as an important catalyst to provide the policy development, advocacy, research, capacity building, and consulting needs pertaining to the Responsible Business Conduct in India. It is helping businesses of different types, sizes and sectors for adaptation, integration and disclosure of ESG Frameworks.

Pertinent to mention that the Ministry of Corporate Affairs, Govt. of India with technical support from the IICA has launched National Guidelines for Responsible Business Conduct (NGRBC) in 2019. The guidelines laid down the basic requirements for businesses to function responsibly, thereby ensuring a wholesome and inclusive process of economic growth. The overarching nine principles of the guidelines have been linked to the UNGPs and SDGs. The NGRBC urges businesses to conduct business responsibly and sustainably and to encourage and support their suppliers, vendors, distributors, partners and other stakeholders to adopt the guidelines. The NGRBC is designed to be a common framework for all businesses irrespective of their size, scope, sector, ownership, structure or location. It has been designed in such a way that every business in India, including SMEs, can easily adopt the guidelines and put them into practice.

As the government of India is strengthening the regulatory framework around ESG, with the introduction of the Business Responsibility and Sustainability Report (BRSR) framework by SEBI, it has joined a group of countries that have released comprehensive and mandatory sustainability reporting frameworks. The BRSR is based on the parent document ‘NGRBC’.

The National Conference on Responsible Business Conduct and Exhibition on Embracing ESG in India were organized with objectives to:

• AddressingContemporary Issues: The conference provided a robust forum to explore the challenges and opportunities in adapting ESG practices within the Indian context.
• Creating Momentum for Responsible Business: It sought to instigate nationwide impetus towards adopting responsible business conduct, driving a positive shift in the business landscape.
• Showcasing and Disseminating ESG Best Practices: An exhibition featuring ESG Best Practices offered stakeholders a comprehensive understanding of the latest developments in these domains. The compilation of exhibited initiatives will be published as a Compendium, serving as a benchmark for stakeholders’ reference.
• Developing Impactful ESG Leadership: An important highlight was the emphasis on cultivating traits of Impact Leadership among ESG professionals, fostering visionary and impactful leadership in this evolving landscape.

The conference served as a pivotal platform catalyzing the integration of Environmental, Social, and Governance (ESG) into the core of businesses. It aimed to enthuse businesses to embrace ESG willingly and integrate it comprehensively into their philosophy, policies, practices, and processes. The discussions centred around leveraging ESG practices to address global challenges such as climate change, natural resource depletion, human rights, and resilience, aligning them with long-term business growth and societal well-being.

The conference was complemented by an Exhibition on Embracing ESG in India, creating a unique opportunity for stakeholders to stay updated with the latest trends, best practices and developments. It reinforced the commitment to creating a sustainable business environment in India. The conference was followed by a Training Workshop on Business Responsibility and Sustainability Reporting (BRSR) held on December 16, 2023, further enhancing knowledge and understanding of ESG framework in India. The conference witnessed 600+ delegations from diverse background, 60 top level subject experts in 10 high level panels, it also witnessed 30+ exhibitors showcasing their key ESG initiatives.

Shri Rao Inderjit Singh, Hon’ble Union Minister of State (IC), Ministry of Statistics & Programme Implementation, Ministry of Planning, and MoS, Ministry of Corporate Affairs, Govt. of India, inaugurated the National Conference on Responsible Business Conduct and Exhibition on Embracing ESG in India. During the inaugural address, Shri Rao Inderjit Singh spoke about the importance of responsible business conduct in India and urged the corporate sector to increase the focus on environmental protection related strategic CSR projects within the purview of Schedule VII of the Companies Act, 2013 as pressing issues of climate change, rise in temperature, eco-degradation, water scarcity, decreasing water levels etc. are important to address in order to survive on planet earth and to secure a sustainable life for our future generations. Some of the important deliberations in the inaugural part of the conference are reproduced below.

Paramount importance of Environmental, Social, and Governance (ESG) principles, emphasizing of dual impact on businesses and society at large is to be considered as businesses ought to be evaluated not solely based on financial success but also by their contributions to the environment, society, and local communities. It is important to highlight the considerable significance of Corporate Social Responsibility (CSR) spending, amounting to Rs. 25,000 Crores, indicating the profound impact it has had on societal development. There is importance of channeling attention and resources towards aspirational districts, signifying a steadfast commitment to uplift underprivileged regions, thereby fostering holistic societal progress.

If we see the historical underpinnings of Responsible Business Conduct, drawing parallels between ancient wisdom from Chanakya and Mahatma Gandhi’s ideologies and their contemporary relevance. We see how Chanakya’s ethical business principles, particularly the emphasis on honesty and ethical dealings, remain applicable in today’s corporate landscape. Furthermore, he underscored Gandhiji’s concept of business functioning as a trusteeship for the welfare of the common people, emphasizing the continued societal contributions made by businesses post-independence. There is need for immediate action on ESG by businesses and role of institutions like IICA in catering those needs.

Looking at the overview of the progress and challenges related to achieving the Sustainable Development Goals (SDGs) globally, the stark reality that only 15% of the SDG targets have been achieved, underscoring the considerable work yet to be undertaken on a global scale. India’s pivotal role, citing its demographic dividend as a substantial opportunity and stressed the vital role businesses play in job creation and wealth generation. We need to recognise the importance of inclusivity, equity, and gender equality for sustainable growth while acknowledging the relevance of SDGs in guiding responsible business practices. India’s advancements in digital infrastructure and green technologies, and country’s commitment to sustainable development and its potential to emerge as a global leader in realizing the SDGs is remarkable.

There has been a long enduring 74-year collaboration of UNICEF’s with the Government of India, underscoring a strong partnership in advancing child welfare and development, aligning with SDG 4’s emphasis on quality education for all. There is need for equitable and inclusive education, which UNICEF is addressing through its mission, with nearly 2 billion children globally, including 460 million in India, emphasizing the significant youth demographic, especially the 122 million in primary schools.

Integrating social justice principles into ESG practices, advocating against divides based on geographic or socioeconomic differences, and urging inclusivity and equality in all initiatives are imperative. Responsible growth through a collective culture of accountability, emphasizing shared responsibility in sustainable development efforts to foster ethical treatment within environmental, social, and governance strategies is to be boosted.

UN Guiding Principles on Business and Human Rights (BHR) advocate for effective remedial mechanisms and shared responsibility of the state and businesses for redressing human rights violations. There is necessity of safeguarding vulnerable groups within business operations and highlighted India’s future and the critical role of millions of workers across sectors, emphasizing the importance of fair treatment for sustainable development.

The contrast between CSR initiatives focusing outwardly and ESG strategies concentrating on ESG factors within a company’s operations need to be understood. There is need for measure impact as a quantifiable achievement. HCL’s 100,000 hours of volunteering is a good example in this respect. We need to explore the ways which comprehend ESG’s role in organizational impact.

There is also pivotal role of technology in establishing connections between NGOs and Corporates. Various technologies can facilitate the development of a digital ecosystem, enabling the seamless exchange of knowledge, resources, and opportunities.

2. Responsible Governance – From Right to Duties

The discussions on Responsible Governance marked a crucial pivot from focusing on rights to embracing duties. It helped to unravel the complexities inherent in responsible governance, shedding light on the evolving landscape of business ethics and sustainability in the Indian context focusing on how businesses exercise transformative power and carry inherent responsibilities in fostering responsible practices.

Key objectives for deliberations on the subject were to emphasize the critical role of responsible governance in ensuring ethical and sustainable business operations; to promote and discuss the key pillars of responsible governance, including ethical business practices, compliance with laws and regulations, sustainability, Corporate Social Responsibility (CSR), shareholder rights and engagement, diversity and inclusion, risk management, stakeholder management, and long-term value creation; to underscore the importance of businesses as key stakeholders in driving India’s path toward responsible governance, emphasizing their responsibility for ethical and transparent practices; to highlight the role of businesses in championing sustainable initiatives and engaging responsibly with the community; to recognize the corporate sector’s profound duty to society, extending beyond profit motives and encompassing a strong commitment to corporate social responsibility; and to encourage dialogue and knowledge sharing to drive greater awareness and action toward responsible governance in the corporate sector.

Emphasizing challenges faced by companies as they implement NGRBC and strategies to adopt more robust implementation from the perspective of Responsible Governance is a major focus. We see challenges by multiple categories of companies, from large business houses to medium and small industries. Every category faces different kind of challenges. MSMEs are considered by large companies into their supply chains catering to Scope-3. They now also concerned with supply chain reporting in light of the BRSR Core and Assurance. The concerns of smaller organizations in adopting ESG primarily revolve around framing appropriate policies, required financial and human capital among others.

Taking an example of TATA Steel’s successful integration of ESG within its entire organization is important to highlight, portraying ESG as a two-way mechanism impacting stakeholders and the external environment positively. The company’s adherence to values, vision, and ethics across all levels facilitated its sustained success. Fundamental aspects, linking ESG and CSR and emphasizing the responsibility to do good for everyone are also to be considered while promoting responsible business conduct. Finance favouring ‘Green’ companies or those transitioning towards environmentally friendly practices are to be dealt in accordance of demand. Role of financial institutions becomes important in fulfilling the needs of sustainable finance and its products.

There is also a need to cultivate a system of Responsible Culture, starting with internalizing ethos at an individual level and expanding toward institutional practices, with focus on transparency, disclosures, and trust. TATA Steel’s environmental initiatives showcase their commitment to decarbonization, innovative partnerships, and the pursuit of Net Zero emissions by 2045 through the experimentation of new methods such as Green Steel production.

IICA’s role in aiding public as well as private companies is pivotal. Compliance challenges within ESG frameworks and focus on proactively adhering to the ‘G’ component of ESG has led today’s businesses to new thoughts and strategies. Regarding additional incentives by the Government of India, there were recommendations on improving governance standards towards environment and social considerations including stakeholders’ engagement. Further, the Companies, Act 2013 nudges companies towards realizing ESG in many ways, National Guidelines on Responsible Business Conduct also provide a way to companies to adopt ESG. Aggressive advocacy and capacity-building efforts are required in future for ESG adoption. There is also a need for developing Indian ESG metrics and indices.

3. Measurement of Environmental Footprint under Indian Regulatory Mechanism

Businesses have been the predominant users and beneficiaries of the resources offered by the nature. On the other hand, adverse impacts on nature lead to the deterioration of the ecosystem on earth. Various countries have multiple regulations for environmental protection and its rejuvenation alongside minimizing the damage already made by human activities or by business houses. These regulations impact the businesses directly in their operations.

The novel onus put on businesses for environmental stewardship by the Indian regulatory framework has led to an increased need to measure and report on their environmental footprints. Issues of measuring and reporting the corporate environmental footprints amidst the rising regulatory pressures from the regulatory bodies in India as well as global stakeholders like buyers, investors and international agencies become important.

With the introduction of regulatory mechanisms like the Carbon Credit Trading Scheme (CCTS), Extended Producer Responsibility (EPR), Green Credits Programme, and Corporate Environment Responsibility (CER), among others, businesses continue to grapple with the right approach and guidance for complying with these environmental compliances. As measuring environmental footprints of businesses is a complex process, involving multiple factors and metrics becomes a prerequisite.

Key objectives of these discussions were to understand the current regulatory framework in India for measuring the environmental footprints of businesses, like extended producer responsibility, and carbon credits scheme, corporate environment responsibility, among others; to discuss the challenges faced by businesses in complying with these novel environmental regulations; to explore innovative regulatory interventions to effectively reduce the environmental footprints of businesses; and to foster dialogue between businesses, regulators, and environmentalists for better policy formulation.

The role of the public sector in advancing the dissemination of the practice of measurement of environmental footprints of supply chain partners including MSMEs through adoption of standardized frameworks in Indian context is crucial. Sustainable Public Procurement policies and practices are also keys to push the measurement of the environmental footprints of businesses from different tiers. Initiatives by the Telangana State Government like the hybrid annuity model to fund environmentally responsible projects, are examples of good practices of how state governments can strike a balance between aiding the growth of businesses as well as addressing adverse environmental impact.

A business case exists for aiding MSMEs and value chain partners of large businesses to measure their environmental footprints as their combined contribution to the aggregate environmental footprints is formidable. The role of financial institutions in driving the momentum for greater environmental footprint measurement becomes inevitable as they are the ones who considers the disclosures for making investment decisions. Financial institutions should adopt standard criteria of credibility of sustainability disclosures and need for assurance before making investment decisions. Role of the institutions like Indian Institute of Corporate Affairs (IICA), and Bureau of Indian Standards (BIS) in standardizing the processes for aggregating the value chain data is also important.

4. Responsible Procurement – Supply Chain Challenges

ESG has gained immense importance in the business world, and it is crucial to explore how small and big businesses can integrate ESG practices into their supply chains effectively. Considering the role of the supply chain in day to day business operation of large companies, SEBI has decided to introduce the BRSR Core for assurance by listed companies in its notification dated May 10, 2021. Based on the recommendations of the ESG Advisory Committee and pursuant to public consultation, the Board further decided to introduce disclosures and assurance for the value chain of listed entities, as per the BRSR Core. To shed light on the unique challenges and opportunities faced by companies in embracing ESG principles within their supply chains several in-depth deliberations were held in the context of responsible procurement.|

Key objectives were to deliberate on the strategies that can be adopted to prioritize responsible procurement and understand its critical role in promoting sustainable business operations across big corporations and MSMEs; to examine the challenges and opportunities that businesses encounter when attempting to adopt responsible procurement practices within their supply chains; to discuss the strategies that businesses shall entail in complying with the new BRSR regulations with respect to the adoption of BRSR core by the supply chain; to identify and share best practices and innovative solutions that can assist businesses in ensuring sustainable supply chain, including MSMEs; and to facilitate a dialogue among stakeholders, including corporate leaders, supply chain professionals, policymakers, and ESG experts, to define key focus areas for policy research aimed at further strengthening legislation in this domain.

Emphasis in deliberations has been on translating policy commitments into practical actions within organizations to ensure ethical sourcing practices are effectively integrated into procurement operations. Implementation of National Guidelines on Responsible Business Conduct (NGRBC) principles to conduct comprehensive due diligence of suppliers, ensuring adherence to ethical standards were also emphasized. The significant contribution of Micro, Small, and Medium Enterprises (MSMEs) to the economy and ways to support and enhance their participation in ethical supply chains were recognized as important issues. Strategies for capacity building and knowledge sharing initiatives within supply chains, aiming to foster better understanding and implementation of ethical practices were identified. Issues pertaining to human rights violations in the supply chain, highlighting the importance of safeguarding the rights of workers, ensuring fair working conditions, and respecting human dignity, were discussed.

The challenges faced by MSMEs, such as lack of technology and financial resources, and discussed potential solutions to bridge these gaps for enabling ethical practices etc. are to be addressed in coherence with multi-stakeholders of business. Social security benefits, working conditions, working hours, and the fundamental rights of workers, focusing on ensuring fair treatment and safety in the workplace were also identified. There is a need for adoption of sustainable practices to mitigate adverse environmental impacts and promote responsible sourcing.

5. Sustainable Finance – Key to Business Growth in the New Age of Responsibility

Approximately half of the world’s GDP relies on nature in some way, but as nature diminishes, there is a significant risk of economic loss. Several recent global events and conferences, such as the G20 Summit under India’s presidency and the SDG Summit in New York in September last year, have boosted the push for sustainable finance and responsible business conduct. The decrease in funding for SDGs, highlighted at the SDG summit, has contributed to a greater emphasis on sustainable finance, which is crucial at present juncture of time. Sustainable finance, at its core, acknowledges the urgency of preserving the environment and addressing environmental degradation and climate change along with other social and related issues. It aims to allocate financial resources to projects and initiatives that minimize environmental harm, conserve natural resources, and mitigate the negative impact of economic activities on our planet. Moreover, it embraces social responsibility by directing investments towards projects that promote social inclusion, reduce inequality, and improve human well-being. Emphasis on the transformative power of sustainable finance and its role in driving responsible business expansion has been deliberated with following objectives:

• Highlight the significance of sustainable finance as a critical tool for driving responsible business practices.
• Discuss strategies and best practices for integrating sustainable finance into business operations.
• Encourage businesses to recognize that responsible conduct is not only a moral imperative but also a sound economic choice for long-term growth.
• Insights into the challenges and opportunities associated with the adoption of sustainable finance.
• Create a platform for stakeholders to engage in meaningful discussions and share insights on responsible finance and its impact on business growth.

The role of financial institutions in the initiatives being taken to harness the requisite finance to fund the achievement of sustainable development goals in India as well as towards the transition of businesses to be more sustainable is crucial. The role of sustainable finance in driving long-term business growth and prosperity for people-planet-profit is important.

There is need to address identified nuances in sustainable finance mechanism and to act on the gap in financing for promoting climate change mitigation and adaptation in India. Various forms of financial instruments which can be leveraged to fund the achievement of SDGs, as well as sustainable business transitions, are to be promoted in the country. There is also a dire need for a consolidated taxonomy for sustainable finance. There is also a need to focus on the pivotal role played by micro-finance institutions in the sustainable finance ecosystem in India. Role of rating agencies in driving the agenda of sustainable finance forward is also important. It is observed by some of the stakeholders that there is lack of credible data sources. Hence, such mechanisms may be established which allow objectively verifiable and assured sustainability data of companies which will potentially help investors to make sustainable investment decisions with trust.

Sustainable finance products such as sovereign green bonds launched by the Government of India to promote sustainable finance in India are to be popularized. Also, addressing the issues of the lack of capacity of the professionals in the financial to navigate the sustainable finance transition effectively and co co-create a conducive ecosystem for harnessing and utilizing sustainable finance is to be dealt with utmost urgency. The IICA Certificate Programme on Sustainable Finance launched during national conference is first of its kind capacity-building programme to cater needs of finance and other such professionals helping them to smoothly transit to sustainable finance in the new age of responsibility.

6. ESG Regulations in India – BRSR & Beyond

The topic, “ESG Regulations in India: BRSR & Beyond,” holds significant relevance in today’s corporate landscape. With the introduction of the Business Responsibility and Sustainability Reporting framework by SEBI, India is witnessing a pivotal shift towards responsible business conduct, where NGRBC principles are at the forefront. This discussion is essential because it not only delves into the specifics of the BRSR framework but also explores the broader implications of ESG regulations, stakeholder engagement, international alignment, economic benefits, innovation, and compliance challenges. Furthermore, it provides a platform to anticipate and prepare for the evolving ESG landscape in India. By addressing these facets, this panel discussion aimed to foster a deeper understanding of the impact, challenges, and opportunities surrounding ESG regulations, furthering India’s journey towards responsible and sustainable corporate citizenship on both national and international levels, specific objectives were:

• Explore evolving ESG regulations in India, focusing on the BRSR framework’s significance for businesses.
• Discuss practical implications of ESG regulations on stakeholder engagement, transparency, and responsible conduct.
• Examine how ESG assessments aid risk management and sustainable growth.
• To identify the challenges faced by businesses, especially smaller and unlisted companies, in complying with the BRSR framework and explore opportunities for leveraging ESG principles to build sustainable business models.
• To identify ways to ensure Impactful Reporting and Human Rights Consideration
• Foster a deeper understanding of the impact, challenges, and opportunities in India’s journey towards responsible and sustainable corporate citizenship.