The Standing Committee on Finance, led by BJP MP Bhartruhari Mahtab, has recommended the creation of a dedicated Environmental, Social, and Governance (ESG) oversight body within the Ministry of Corporate Affairs (MCA) to strengthen monitoring and enforcement of ESG regulations.
In a major policy push, the panel has also called for amending the Companies Act, 2013, to make ESG objectives a fiduciary responsibility of corporate directors, ensuring that boards integrate sustainability into their business strategies.
As part of its recommendations, the committee has proposed introducing penalties for greenwashing — where companies misrepresent their environmental or social impact — to curb misleading ESG claims and promote genuine sustainability efforts.
These recommendations form part of the Standing Committee’s recent report (tabled in the Lok Sabha) on the MCA’s demands for grants for 2025-26.
Need for an ESG Oversight Body
India has made significant progress in fostering sustainable business practices through frameworks such as the Business Responsibility and Sustainability Reporting (BRSR) norms and the National Guidelines on Responsible Business Conduct (NGRBCs). However, challenges persist, including inconsistent implementation across sectors, difficulties faced by smaller businesses in adopting ESG practices, and the growing risk of greenwashing.
To address these issues, the Standing Committee has suggested a multi-pronged approach with the establishment of a dedicated ESG oversight body within the MCA as a key pillar. This regulatory body would be tasked with Monitoring ESG disclosures to ensure accuracy and reliability; enforcing compliance with reporting standards to create uniformity across industries; and introducing penalties for greenwashing to deter companies from making deceptive sustainability claims. By ensuring that companies genuinely adhere to ESG principles, the proposed oversight body aims to build investor confidence and enhance India’s global reputation for responsible business practices.
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Mandatory ESG Integration in Corporate Governance
Recognising the critical role of corporate governance in driving sustainability, the committee has called for an amendment to the Companies Act, 2013, making ESG objectives a fiduciary duty of company directors. This move would legally mandate boards to integrate ESG considerations into their decision-making processes, ensuring that environmental and social concerns are embedded in corporate strategy, rather than treated as optional compliance requirements.
To institutionalise this framework, the panel has also proposed the creation of independent ESG committees within company boards, similar to audit committees, to oversee and monitor ESG implementation effectively. These committees would be responsible for evaluating sustainability risks, setting ESG-related goals, and ensuring that companies follow through on their commitments.
Annual ESG Reporting
The committee has further recommended that the Ministry of Corporate Affairs dedicate a chapter on ESG in its Annual Report, starting from the fiscal year 2025-26. This would provide transparency on the government’s ESG initiatives, regulatory measures, and corporate compliance trends. By including ESG reporting in official documentation, the ministry would set a precedent for greater accountability in both the public and private sectors.
Cracking down on greenwashing
One of the committee’s most crucial recommendations is the introduction of penalties for greenwashing — a growing concern globally as companies face increasing pressure to demonstrate sustainability.
Put simply, Greenwashing is the practice of misleading consumers, investors, or regulators by making false or exaggerated claims about a company’s environmental or social responsibility. It involves portraying a business or product as more sustainable, eco-friendly, or socially responsible than it actually is.
Some of the common forms of Greenwashing include vague or unverified claims; selective disclosure; misleading labels and imagery; hidden trade-offs and irrelevant claims.
The proposed oversight body would be responsible for identifying and penalising companies engaging in greenwashing, ensuring that only genuinely sustainable businesses benefit from the rising demand for ESG-compliant investments. The penalties may include fines, public disclosures of non-compliance, and potential legal action for severe violations.
Strengthening India’s ESG Landscape
These recommendations align with India’s broader vision of achieving a sustainable economy while maintaining investor confidence in the country’s corporate governance framework. By making ESG integration a legal requirement for boards, introducing independent monitoring bodies, and penalising misleading claims, the committee aims to create a more transparent, accountable, and responsible business environment.
Now that the Standing Committee has suggested several measures, the Ministry of Corporate Affairs is expected to review the recommendations before taking further action, potentially paving the way for a transformative shift in India’s corporate sustainability framework, economy watchers said.
If implemented, these measures would place India at the forefront of ESG regulation, aligning its corporate governance practices with global sustainability standards, and enhancing its attractiveness to ethical investors, they added.
