From CSR to ESG: Strengthening Accountability and Shareholder Democracy

[Arundhathi is a student at National University of Advanced Legal Studies.]

The architecture of Indian corporate governance has evolved from a regime of statutory social obligation to one that emphasises sustainable accountability. The corporate social responsibility (CSR) framework, introduced under Section 135 of the Companies Act 2013 (Companies Act), was a legislative milestone that required companies to allocate a prescribed portion of their profits to social welfare. India was among the first jurisdictions to statutorily prescribe CSR under company law. However, CSR often became expenditure-centric rather than impact-centric, reducing responsibility to a mere compliance transaction, and failing to embed responsibility into core governance decision-making.

The emergence of the environmental, social, and governance (ESG) framework marks a significant transformation from philanthropy to accountability. ESG redefines corporate responsibility through risk, performance, and governance rather than philanthropy. While CSR mandates expenditure, ESG demands demonstrable responsibility across operational, environmental, and ethical dimensions. The Securities and Exchange Board of India (SEBI) has been the principal architect of this shift through the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, which introduced Regulation 34(2)(f) requiring listed entities to include a Business Responsibility and Sustainability Report (BRSR) within their annual disclosures. The BRSR framework integrates ESG principles by mandating companies to disclose information on emissions, energy usage, employee welfare, and governance integrity. Leading Indian enterprises such as Infosys and Tata Steel have adopted integrated ESG reporting well ahead of regulatory deadlines, setting benchmarks in energy efficiency, carbon neutrality, and community inclusion. 

BRSR, BRSR Core, and SEBI in 2025

In 2021, SEBI introduced the BRSR Core, containing a set of quantitative ESG metrics for the top 1,000 listed entities. This shift from narrative disclosure to numerical accountability is a significant governance reform. In April 2025, the regulator announced a review of the BRSR Core to align it with international frameworks, such as the International Sustainability Standards Board and the EU Corporate Sustainability Reporting Directive (CSRD), to enhance comparability and reduce duplication. 

The Companies Act complements SEBI’s framework by embedding fiduciary and governance obligations aligned with ESG. Section 134(3)(m) requires boards to report on energy conservation and risk management. Section 166(2) imposes a fiduciary duty on directors to act in good faith for the benefit of the company’s members as a whole. Further, a qualified shareholder under Section 100 can requisition an extraordinary general meeting to question management conduct or inadequate ESG reporting. Under Section 245, class action suits allow members and depositors to initiate proceedings against the company, its directors, or auditors for acts of mismanagement or the issuance of misleading statements in reports. Misstatements in ESG disclosures attract liability under Sections 447 and 448, which penalise fraudulent or false reporting. Together, these provisions recognise that corporate purpose extends beyond maximising shareholder wealth. 

ESG Disclosures and the Future of Shareholder Democracy

The contemporary significance of ESG disclosure lies in its dual role as a mechanism of transparency and a tool of shareholder empowerment. Shareholder democracy gains new relevance as investors use ESG data to supervise management conduct. Shareholders can now challenge boards not only for mismanagement but for misconduct against the environment and society, expanding the traditional boundaries of corporate accountability. BRSR obligations thus serve not only to promote regulatory transparency but also to strengthen shareholder capacity to hold boards accountable for environmental and social outcomes. The interwoven relationship between ESG and shareholder rights has also been evident in recent instances. In In Re: Vedanta Limited (2023), minority shareholders and institutional investors expressed concern over the company’s proposed restructuring, citing insufficient environmental and governance transparency. Shareholders now expect boards to strike a balance between profit and responsibility, making credible ESG disclosure a key factor in determining investor confidence.

Nevertheless, the emerging ESG regime in India presents its own challenges. The lack of uniformity among disclosure frameworks, such as SEBI’s BRSR and the Global Reporting Initiative (GRI), creates inconsistencies in evaluation and hinders comparability across sectors. The absence of mandatory assurance mechanisms for verifying ESG data creates the risk of “greenwashing,” where sustainability claims are overstated without adequate verification. ESG literacy among investors and regulators remains uneven, increasing the likelihood that compliance becomes formalistic rather than transformative. Addressing these issues requires stronger SEBI oversight, mandatory assurance for critical ESG indicators, and deeper integration of ESG supervision into board-level audit committees, as per Section 177 of the Companies Act.

Comparative Perspectives

Globally, ESG regulation has already moved beyond voluntary narrative disclosure into enforceable, liability-backed governance. CSRD now mandates audited sustainability data, with penalties for non-compliance and legal exposure for misstatements. The United States Securities and Exchange Commission (SEC) has proposed climate-related financial disclosures that, when finalised, could trigger securities-level liability for inaccurate climate data, placing environmental misstatements on a footing comparable to fraudulent financial reporting. In the United Kingdom, the Stewardship Code operates through market exclusion rather than statutory punishment: asset managers and companies that fail to demonstrate stewardship or ESG responsibility risk being dropped from stewardship listings and investment indices. By contrast, India sits at a midpoint. SEBI’s BRSR and BRSR-Core frameworks are robust disclosure tools; however, assurance remains limited, penalties are not yet ESG-specific, and enforcement relies more on transparency than on consequences. India’s regulatory architecture is therefore advanced in reporting but cautious in consequences. 

Way Forward

Despite India's progress, the ESG regime remains disclosure-heavy and consequence-light. If ESG is to succeed where CSR stagnated, the framework must transition from visibility to verifiability, and from declarations to enforceable duties. Therefore, India’s next step lies not in expanding reporting but in defining the consequences of inaccurate or unverified sustainability claims.

The first step of this shift must be credibility. ESG performance cannot continue to rely solely on self-certification, especially when sustainability claims influence capital flows, lending decisions, and market valuations. Independent third-party assurance of BRSR-Core indicators, particularly for high-impact sectors, would transform ESG data from narrative to evidence. A phased assurance model aligning with internationally recognized standards such as ISAE 3000 and SAE-3410 would prevent companies from effectively auditing their own sustainability claims.

Second, greenwashing must carry a cost. If a corporation misstates emission levels, conceals labour risks, or exaggerates governance credentials, the harm is not abstract but financial, measurable, and directly linked to investor trust. Misrepresentation of ESG metrics should therefore attract civil liability, comparable to liability for fraudulent financial reporting. Penalties, disgorgement, and shareholder-led action would ensure that ESG disclosures are not mere brochures but binding representations, subject to scrutiny and challenge.

The third step is internal reform. Sustainability oversight committees would institutionalize continuous scrutiny of climate risk, labour welfare, environmental compliance, and governance practices. Shareholders must also be empowered through structured engagement mechanisms that allow investors to assess social and ecological conduct alongside financial performance. 

Finally, the insolvency framework must recognise that ESG failure is a precursor to financial distress. Sterlite and IL&FS demonstrated how reputational collapse can accelerate insolvency faster than balance sheets can reflect it. Integrating ESG risk evaluation into resolution plans, mandating disclosure of environmental liabilities, and incorporating transition commitments would prevent insolvency from serving as a reset button for unsustainable conduct. Instead, it would make sustainability a determinant of business viability. Thus, India’s corporate maturity will depend not on the volume of reporting but on the consequences for inaccurate or inadequate disclosures. 

India is not alone in grappling with the enforceability of ESG. The European Union has already moved beyond voluntary disclosure through the CSRD, where non-compliance attracts monetary sanctions. The SEC now proposes climate-related financial disclosures that could trigger securities liability when misstated, shifting climate reporting closer to securities accountability. The United Kingdom’s Stewardship Code similarly ties governance quality to investor stewardship, and companies risk exclusion from investment indices upon non-compliance. Compared to these frameworks, India excels in reporting but is cautious in penalties, placing it structurally between transparency and enforceability. For ESG to avoid replicating CSR’s stagnation, India must align more closely with jurisdictions where sustainability is legally consequential rather than merely aspirational.

Conclusion

CSR introduced conscience into corporate law, but ESG must introduce consequences. India today stands between the comfort of disclosure and the necessity of enforcement. SEBI has constructed the reporting architecture, the Companies Act embeds fiduciary responsibility, and shareholder democracy is maturing into participatory oversight. However, without liability, ESG risks become CSR 2.0, a sophisticated but ultimately ineffective framework. The future of Indian corporate governance will not be determined by how well companies disclose their sustainability, but by how severely they are challenged when they fail to do so. When misstatements attract penalties, greenwashing triggers class-action lawsuits, and insolvency recognizes sustainability risk as a metric of viability, ESG will transform from a disclosure to an enforceable norm. India does not need more sustainability reports. It needs sustainability repercussions. The next decade will decide whether ESG reforms remain a polished evolution or become a regulatory revolution, shifting governance from mere transparency to verifiable responsibility and enforceable accountability.