India – Navigating ESG Compliance: Lessons From Recent Trends And The Santos Case.
In an era marked by growing environmental consciousness and regulatory oversight, companies across the globe are facing heightened scrutiny over their sustainability claims. The recent lawsuit[1] against Santos Ltd., a major Australian energy company, serves as a wake-up call for corporations navigating the evolving landscape of Environmental, Social, and Governance (ESG) compliance. This article explores key takeaways from this landmark case, highlights the current ESG regulatory framework in India, and provides practical guidance for companies and investors to avoid similar pitfalls.
The Santos Case: A Precedent for Greenwashing Litigation
In August 2021, the Australian Centre for Corporate Responsibility (ACCR), a research and shareholder advocacy organisation, commenced proceedings against Santos Ltd. During the proceedings, currently being heard by the Federal Court of Australia, ACCR alleged that the company engaged in greenwashing – a practice where businesses misrepresent or exaggerate their environmental initiatives. The suit accused Santos of making misleading statements about its commitment to net-zero emissions, while continuing significant fossil fuel projects. This groundbreaking lawsuit, the first of its kind, signals a shift in shareholder activism and regulatory expectations, reinforcing that ESG commitments must be substantiated with transparent and accurate disclosures. The incident may even be described as a form of “green collar crime,” emphasising the severity of misleading sustainability claims.
Similar Cases in India: The Emerging Threat of Green Collar Crime
While India has yet to see a similar suit directly alleging greenwashing, akin to the Santos case, there have been instances that hint at the growing potential of such legal challenges. Regulatory bodies like the Securities and Exchange Board of India (SEBI) have taken action against companies for misrepresentation in various forms, including overstated sustainability initiatives. Additionally, public interest litigations (PILs) filed by environmental groups often target misleading environmental claims or inadequate compliance with sustainability norms, highlighting the increasing awareness and readiness for potential greenwashing claims.
India’s ESG Landscape: Emerging Regulations and Requirements
While the Santos case underscores the risks associated with greenwashing globally, India has taken proactive steps to bolster ESG compliance among its companies. Indian regulators are increasingly aligning with global standards and placing a premium on authentic ESG disclosures. Highlighted below are the key regulatory initiatives shaping India’s ESG framework:
SEBI’s Business Responsibility and Sustainability Reporting (BRSR)
SEBI introduced the Business Responsibility and Sustainability Reporting (BRSR) framework in 2021, a more stringent version of the earlier Business Responsibility Reporting (BRR) framework, which mandates 1,000 top-listed companies to provide comprehensive ESG disclosures. In July, 2023, SEBI introduced the BRSR Core to include nine ESG attributes as pertinent to sustainable corporate governance. BRSR is structured to encourage transparency and help stakeholders understand how companies integrate sustainability into their business models. The report requires detailed information on policies, practices, and measurable outcomes related to ESG aspects, ensuring that companies back their sustainability narratives with data.[2] Recently, in January 2025, SEBI provided a relaxation in the timeline for review of ESG rating, following the publication of BRSR. ESG Rating Providers (ERPs) will carry out a review of the ESG ratings upon the occurrence of or announcement/ news of such material developments immediately, but not later than 10 days of occurrence of the said event. However, review of the ESG rating, following the publication of BRSR by the rated entity, will be carried out immediately, not later than 45 days from the publication of the BRSR.
The BRSR framework, read with the provisions of the Companies Act, 2013, exhibit that regulators are beginning to critically focus on such non-financial attributes while assessing governance, which may prompt statutory auditors, required to report fraud by the National Financial Reporting Authority (NFRA), to follow suit and report frauds that may not necessarily be strictly financial in nature, such as greenwashing.
RBI’s Climate Finance Disclosure Requirements
Following SEBI’s lead, and in response to the growing concerns of climate-related financial risks, the Reserve Bank of India (RBI) has outlined disclosure requirements for financial institutions in the form of a draft disclosure framework[3]. These regulations aim to make climate-related information an integral part of financial reporting, emphasising on identification, assessment, and management of climate risks. Although not directly applicable to all corporates, these requirements signal the broader direction in which regulatory bodies are moving — towards greater accountability in ESG reporting.
Greenwashing Guidelines (November 2024)
One of the most significant developments in India’s ESG landscape recently is the introduction of the Guidelines for Prevention and Regulation of Greenwashing or Misleading Environmental Claims’ (“Greenwashing Guidelines”), promulgated by the Central Consumer Protection Authority (“CCPA”) under the Consumer Protection Act, 2019.
These guidelines represent a critical step in addressing the spread of misleading ESG claims and ensuring that companies provide authentic, verifiable information. Here is an in-depth look at what these new guidelines entail:
- Verifiable Data: Companies must substantiate their sustainability claims with comprehensive and verifiable data. This ensures that ESG commitments are backed by hard evidence rather than vague assertions.
- Clarity and Accessibility: The Greenwashing Guidelines mandate that all ESG-related disclosures be presented in a clear, non-technical manner, allowing stakeholders, including investors and the general public, to understand the true nature of a company’s sustainability efforts without specialised knowledge.
- Third-Party Validation: Where applicable, companies are encouraged to seek third-party verification of their ESG data. This adds an additional layer of credibility and reduces the potential for accusations of greenwashing.
- Prohibition of Overstatement: The Greenwashing Guidelines explicitly prohibit exaggeration or misrepresentation of sustainability achievements. Companies must be transparent about the scope and impact of their environmental initiatives, avoiding any language that could be perceived as misleading.
- Auditing and Monitoring: Provisions are set out for both periodic audits and monitoring of ESG disclosures. This will likely involve both internal and external checks to ensure continued compliance and maintain the integrity of sustainability reports.
The Greenwashing Guidelines set a clear standard: ESG claims must be as concrete and accurate as financial disclosures, thus marking a move towards more robust corporate accountability and reflecting a global trend of holding companies responsible for their sustainability narratives.
Key Considerations for Companies and Investors
To navigate the evolving ESG landscape in India, companies and investors must adopt proactive strategies that align with regulatory expectations. Companies should take cognizance of the following best practices:
- Ensure Data-Driven ESG Disclosures: Companies should implement robust data collection mechanisms to provide transparent, data-backed ESG reports. Integrating advanced technologies such as blockchain can offer immutable evidence of ESG efforts, adding credibility to disclosures.
- Incorporate Third-Party Verification: To enhance trust, consider third-party audits or certifications for ESG claims. Independent verification can serve as an assurance to stakeholders that a company’s sustainability commitments are legitimate.
- Align with International Frameworks: Aligning disclosures with international standards, such as the Global Reporting Initiative (GRI) or the Task Force on Climate-related Financial Disclosures (TCFD), can make compliance more robust and globally recognizable. This approach prepares companies for potential future mandates and enhances investor confidence.
- Periodic Review: Companies should undertake a periodic review of the actions undertaken to prevent greenwashing claims that may form a part of the annual report. This periodic review may be carried out utilising the same resources as for BRSR compliance.
- Training and Capacity Building: Building internal capacity for comprehensive ESG reporting is essential. Regular training programmes for leadership and reporting teams can keep them updated on new guidelines and industry best practices.
Insights for Investors
Investors, too, need to exercise due diligence when assessing the ESG credentials of potential investments. Beyond reviewing BRSR filings, investors should:
- Evaluate the credibility of a company’s ESG data.
- Be mindful of third-party assessments and independent ESG ratings.
- Engage with companies to clarify the basis of their sustainability claims.
Conclusion
The lawsuit against Santos Ltd. underscores a rising trend of accountability that companies face when making ESG commitments, even closer home. As India advances its regulatory framework with measures like SEBI’s BRSR, RBI’s climate finance disclosures, and the newly introduced Greenwashing Guidelines, companies must ensure their ESG disclosures are transparent, accurate, and substantiated. Embracing these practices not only mitigate legal and reputational risks, but also foster sustainable growth and investor trust. With the right strategies, Indian corporates can turn compliance into a competitive advantage in the era of conscious capitalism, avoiding the pitfalls of what could now be termed “green collar crime.”
*The authors were assisted by Dhanashri Ninawe (Intern)
[1] The Guardian, Santos Sued by its Own Shareholder in World-First Greenwashing Case.
[2] ESG Disclosures: A New Frontier in Combating Corporate Misconduct | India Corporate Law
[3] Reserve Bank of India, Draft Disclosure framework on Climate-related Financial Risks, 2024.
