Boardroom promises to courtroom realities: the rise of ESG litigation in India

Piyush Agrawal

Aquila, Kolkata

piyush.agrawal@aquilaw.com

Debdatta Mukhopadhyay

Aquila, Kolkata

debdatta.mukhopadhyay@aquilaw.com

ESG in India: jurisprudence and regulation at a glance

Indian jurisprudence has long recognised that a company, though an artificial legal person, is not merely a vehicle for profit maximisation but also a ‘social animal’ embedded in the larger framework of society. This idea flows from the doctrine of corporate social responsibility (CSR) and is reflected in statutory frameworks such as section 166(2) of the Companies Act, 2013[1], which states inter alia that:

‘A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.’

Furthermore, section 135 of the Companies Act, 2013[2] mandates that every company with (1) a net worth of INR5bn or more, (2) turnover of INR10bn crore or more, or (3) net profit of INR5nbn or more must constitute a CSR committee and spend at least 2 per cent of its average net profits from the preceding three years on activities under Schedule VII. Unspent amounts must be transferred or utilised in accordance with prescribed rules. This provision converts social responsibility from a voluntary principle into a statutory duty.

In India, from the perspective of regulatory enforcement, the Securities and Exchange Board of India (SEBI) has spearheaded developments in the sphere of ESG by integrating sustainability into the regulatory framework. SEBI mandated that the top 1,000 listed companies based on market capitalisation make disclosures under the Business Responsibility and Sustainability Reporting (BRSR) framework.[3]

Further, SEBI has inter alia issued:

• the Framework for Environment, Social and Governance Norms (ESG Debt Securities) to facilitate issuers to raise funds through issuance of ESG debt securities;[4] and
• guidelines on ESG rating providers[5] and ESG mutual fund schemes, ensuring transparency, comparability and investor protection.

These initiatives, coupled with the statutory framework in the Companies Act, 2013 and the constitutional commitment to sustainable development, mark a significant stride towards embedding ESG into corporate governance in India.

Constitutional jurisprudence under Articles 21, 48A, and 51A(g) of the Constitution of India, reinforced by consistent judicial interpretation, has progressively expanded the scope of environmental and social rights. In addition, statutory frameworks such as the Environment Protection Act, 1986, the Air (Prevention and Control of Pollution) Act, 1981, the Water (Prevention and Control of Pollution) Act, 1974, and the EIA Notification provide direct legal bases for environmental claims. Non-compliance with these environmental norms can therefore be pursued as ESG violations.

It is also pertinent to note that the Supreme Court of India, in MK Ranjitsinh vs Union of India,[6] emphasised the statutory duty imposed on directors to act in good faith, including the obligation to safeguard the environment.

While developments have been made through judicial interpretation of constitutional mandates, statutory duties and SEBI’s regulatory framework, the authors believe ESG in India remains under-enforced. Companies often make broad sustainability commitments without adequate verification; investors face persistent information asymmetry; and consumers are misled by greenwashing campaigns. This gap between promises and performance underscores the need for a decisive shift from boardroom commitments to more robust courtroom accountability.

ESG litigation: conceptual framework

Simply put, ‘ESG litigation’ refers to legal disputes where environmental, social or governance standards form the basis of claims. The primary litigation risks stem from shareholder activism and investor actions against companies and their directors, particularly concerning materially false or misleading ESG disclosures or representations in prospectuses and investor reports.[7]

There is a thin but important line of difference between environmental law litigation and ESG litigation. Environmental law litigation is narrower and statute-driven, dealing with violations of specific environmental laws and regulations. ESG litigation, on the other hand, is broader and multi-dimensional, covering environmental issues plus social and governance aspects, and most importantly is tied to corporate disclosures, fiduciary duties and stakeholder expectations. Environmental litigation stops at pollution control; ESG litigation continues into accountability for how that breach is reported, governed, and disclosed to stakeholders.

On a global analysis, the authors find that ESG litigation broadly encompasses greenwashing, climate litigation, disclosure litigation and governance litigation. In India, while explicit ESG litigation is nascent, the foundations exist in environmental jurisprudence, securities law, consumer protection and corporate governance norms.

ESG litigation possibilities in India

Climate washing and misleading disclosures

As Indian companies increasingly release sustainability reports, exaggerated or inaccurate claims may amount to fraud or misrepresentation. Potential actions include shareholder derivative suits, SEBI enforcement proceedings, or consumer complaints. For instance, if a cement manufacturer publicly commits to becoming ‘net zero by 2040’ without any credible roadmap, it could face litigation for misleading investors and stakeholders.

Fiduciary duties

Directors may be held accountable for failing to anticipate, disclose or mitigate material ESG risks. In India, section 166 of the Companies Act, 2013 offers a statutory foundation to frame similar arguments regarding directors’ duties to act in good faith and in the interest of the community and environment.

Supply chain issues

A growing area of potential ESG litigation in India lies in supply chain accountability, where companies may face legal action for labour rights violations, unsafe working conditions, or harm occurring at the level of contractors, subcontractors or suppliers. With India’s heavy reliance on informal and unorganised sector labour, risks such as child labour, bonded labour, and hazardous workplace practices remain significant.

Conclusion

The trajectory of ESG in India reflects a clear shift from voluntary CSR initiatives to binding legal and regulatory mandates, driven by constitutional duties, statutory requirements under the Companies Act, SEBI’s disclosure framework and so on.

Yet, this evolution will remain incomplete without robust enforcement. Moving forward, the author(s) believe that ESG litigation in India must focus on:

• statutory clarification by amending the Companies Act and SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations to explicitly impose ESG disclosure duties and liability for misstatements;
• regulatory capacity building, with SEBI and the Ministry of Corporate Affairs establishing specialised ESG enforcement wings;
• judicial innovation, where courts, including the National Green Tribunal, expand constitutional and environmental justice principles to ESG disputes;
• stakeholder empowerment encouraging investor activism, shareholder suits and consumer collective actions; and
• global alignment, integrating Indian disclosure norms with International Sustainability Standards Board (ISSB), European Union Corporate Sustainability Reporting Directive (EU CSRD), and Global Reporting Initiative (GRI) standards for credibility and comparability.

For the environmental aspect, legislation could be brought in that requires sector-specific emission disclosure standards, imposes stronger penalties for greenwashing activities by companies, and sets statutory benchmarks on renewable energy adoption, waste reduction and water conservation.

For the social dimension, laws could establish fair labour practice requirements, mandate diversity reporting, strengthen workplace safety norms, and hold companies accountable for supply chain violations such as child labour or forced labour.

With respect to governance, legal reforms could introduce minimum standards for board diversity, enhance independent directors’ accountability, ensure transparency in executive remuneration, and enforce strict penalties for misreporting or bribery.[8]

Narrow violations under such laws could trigger litigation ranging from shareholder actions against misleading sustainability claims, to employee suits over unsafe work conditions, to regulatory enforcement in cases of corporate fraud. Broadly, a legal framework of this kind would go beyond the voluntary and disclosure-driven nature of ESG standards. ESG at present mainly works as a reporting and investment screening tool: statutory obligations would require corporations in India to actually build sustainability, transparency and ethical conduct into the way they run their businesses.