Author name: Hardik Jharkharia, a law student from Lloyd Law College.
Abstract
Indian corporate law has assumed increasing importance in promoting sustainable business practices-keeping companies abreast not only of their profit objectives but also their social and environmental responsibilities. The important key provisions are the mandated Corporate Social Responsibility under the Companies Act of 2013 and, more recently, the BRSR from SEBI, making it obligatory for firms to invest in community welfare and disclose their environmental impacts. Moreover, environmental laws such as the Environment (Protection) Act and the Air and Water Pollution Acts compel companies to adopt cleaner practice that directly influences their business strategies. Yet, despite these developments, there are still major challenges such as that SMEs are not informed enough, compliance costs remain high, and enforcement efficiencies are poor, which normally prevents full adoption of sustainability practices. Solutions such as financial incentives, capacity-building programs, and stronger regulatory oversight will ease these barriers, nudging more companies toward sustainability. Increasing pressure from stakeholders and changing regulations are likely to make Indian businesses go deep into sustainable development, contributing to inclusive growth and environmental well-being. Because the above goals are maintained on support by corporate law, the country moves steadily toward that resilient and accountable business environment that will look at balance profitability with greater social good.
Introduction
Generating economic value while balancing social and environmental responsibility is the duty of the state and citizens of India to make the country developed and naturally healthy. India is a country that has experienced rapid growth in recent years. In this time, where people are chasing everyone in the field of economics, it is important that we take care of nature and not do any harm to the environment. Indian law makes bodies aware of how to balance the economy and environment. They create laws that protect the environment from unwanted development and growth. The Indian constitution also talks about environmental protection in Article 43A: [The State shall take steps, by suitable legislation or in any other way, to secure the participation of workers in the management of undertakings, establishments or other organizations engaged in any industry.] and Article 48: [The State shall endeavor to organize agriculture and animal husbandry on modern and scientific lines and shall, in particular, take steps for preserving and improving the breeds and prohibiting the slaughter of cows, calves, and other milch and draught cattle.] There is also a provision of Directive Principles of State Policy that promotes substantial business. The Parliament of India, after observing the hunger of industries for economic growth, became concerned about the environment and natural resources of India. From there, they passed the Companies Act, 2013, which promotes sustainable business practices in India. The law has provisions and sections on sustainable business, and Indian industries follow the provisions of statutes very well and create many innovations and methods that start positive growth in sustainable business in India. The basic steps and rules are very productive in creating a positive environment for companies and industries. Substantial growth does not come only from high expenses; there is a proper use of resources, which also makes a business affordable and healthy. There are some steps taken by businesses to switch to sustainable practices, such as solar energy in comparison to coal electricity, renewable sources of energy, rainwater harvesting, the making of electric cars, and innovative tools and machines that enhance sustainable growth. These are some basic steps taken by corporate businesses in their daily operations. There is also a provision for green projects by the Indian government, which they use to create new sustainable businesses and fund them well. Green projects include examples such as green cities, green parks, green societies, etc. In this article, I analyze the provisions and laws that play a role in promoting sustainable business and also try to find the next steps which the Indian government should take to grow sustainable businesses and identify solutions that can improve the working patterns of Indian businesses in terms of the environment.
Key Legal Provisions Supporting Sustainable Business Practices
Corporate law also includes other provisions relating to sustainability and transparency as well as corporate ethics. In fact, India was one of the first countries where CSR legislation was introduced and made obligatory. For the first time, CSR appeared as an obligation in The Companies Act 2013 as Section 135. Now, even companies that achieve a criteria have to make investments of a minimum of 2 percent of the average net profitability in activities, that indirectly benefit society or the environment. The above provision will be attracted to those companies that have a net worth of more than ₹500 crore, with a turnover of more than ₹1,000 crores, or with net profits of more than ₹5 crores. Companies would also be allowed under CSR to implement projects dealing with health care, education, rural development, and conservation of environment. Considering legal implications, the eligible companies have to provide a share of their CSR funds and also account for utilization, and this made corporations take active interest in social and environmental welfare also.
The NGRBC is the set of guidelines issued by Ministry of Corporate Affairs, which are adopted by companies while working, acting both ethically and responsibly in the process. These guiding principles for NGRBC focus on ethical behavior, respect towards the environment, fair treatment of employees, and commitment to communities. Business organizations are also expected to eschew practices harmful to the environment, promote resource efficiency, and make contributions to society. These guiding principles reduce negative effects toward the environment and enhance labor practices and local relations.
SEBI further added to the development of sustainability through the BRSR of the Business and Sustainability Report. The companies are compelled to report on aspects like environmental impact, or the number of emissions from the operation, waste produced, and energy consumption on one side, and through social programs on the other. These reports are implemented on all the top 1,000 listed firms in India. The BRSR is thus helpful to investors, consumers, and stakeholders as they are able to understand what a company is doing regarding its sustainability. This type of reporting creates accountability as firms are motivated to practice sustainable practices in order to uphold their reputation and attract more stakeholders who are interested in socially responsible investments.
CSR and transparency regulations aside, corporate law has enforced many environmental laws that directly influence business practices. Key legislations include Environment (Protection) Act 1986, which enables the government to establish and maintain standards for emissions, wastes, and levels of pollution. The Water (Prevention and Control of Pollution) Act, 1974 and the Air (Prevention and Control of Pollution) Act, 1981 mandate industries-manufacturing and mining among them-to treat their wastes and effluents responsibly. Following such laws also becomes essential since this ensures that the company is subjected to penalties or goes to court in case such regulations are broken, making businesses minimize pollution and focus on cleaner operations.
Effects of Corporate Law on Business Strategies and Investments
With corporate law emphasizing sustainability, businesses have begun correlating their growth strategies with sustainable development goals. CSR being a legal necessity for most companies has ensured that issues related to society and environment become an integral part of the core activities of any organization. Most of the companies are starting with greening, reducing carbon footprint, and investing in renewable resources. While aligning growth strategy with sustainable development will help in better social well-being by businesses, the positive brand reputation is its gain and, today in the changed marketplace, the brand reputation is wealth because consumers and investors now prefer ethical practices.
Corporate law also fosters environmentally sensitive investment practices because investors are assured of being drawn to concentrate on ESG factors. The mandated disclosures under BRSR enable companies to demonstrate their commitment to sustainability and attract more socially responsible investors. Sustainable practices increase a company’s appeal to an increasingly large pool of green capital. Not only can sustainability positively influence the long-term bottom line in terms of waste reduction, resource efficiency, and customer loyalty, but companies that adopt it also see value in embracing it in terms of access to funding and building resilience.
The legal demand for transparency in BRSR makes companies more accountable because they have to publicly report their social and environmental footprint. Transparency will create trust, and trust will enable companies to attract customers and investors who are concerned with corporate social responsibility. Moreover, the fact that companies are required to report on sustainability regularly provides stakeholders with the ability to check the companies against their sustainability commitments, thus creating a culture of continuous improvement.
Barriers in Facilitating Sustainability through Corporate Law
Despite the progress, quite a few challenges face this full realization of sustainable business practices through corporate law in India. The first issue is the lack of awareness and expertise among the small businesses. Most small to medium enterprises (SMEs) do not possess the resources and knowledge essential for effective implementation of such practices. Small-scale enterprises do not understand complicated regulations, invest in green technologies, and formulate sound CSR programs. Sustainability teams are also not set up in small businesses; therefore, they cannot absorb best practices.
Compliance costs are also a deterrent. In pollution-intensive industries, the cost of becoming environmentally compliant is very high. For instance, manufacturing or mining companies should replace equipment, introduce different mechanisms of pollution control, and design waste management systems as duties of the law. While these investments benefit the rest of society and the environmental surroundings, they stretch tight the finances of small- or less-profitable organizations. The financial stress may make it hard for sustainability to be prioritized while the business is subjected to high competition or lower levels of profit.
Another thing in India remains the problems with enforcement. At some instances, enforcing agencies also encounter problems monitoring and meting out punitive action towards a company for violating its environmental laws. Constraints over limited resources along with some inefficiencies by bureaucratic operations often delay their action to meet the legal provisions which defeat the effectiveness of enforcement mechanisms. Because of the said reasons, there will always be room for high risks by taking the easy option of being non compliant where the threats are hardly or inconsistently implemented, this is also one that has to come under aggressive scrutiny by regulators who act in time without wasting unnecessary delay to pick violators as early as possible.
Another challenge is that some firms are still working on maximizing short-term gains rather than long-term sustainability. Sustainability often involves front-loaded investments that may take a while to pay back in monetary terms, and such businesses view it as an afterthought. Businesses will tend to focus more on immediate financial gains in a highly competitive industry instead of sustainability, especially when stakeholders like shareholders emphasize the short-term gains. This mindset slows the adoption pace of sustainable practices, especially among companies without the pressure of strong external force from investors or regulators.
Possible Solutions to Enrich the Role of Corporate Law in Sustainability
In addressing the issues, there are a few measures that would be capable of strengthening the role of corporate law in pushing India towards sustainable business practices. First, it can ensure greater incentives to those firms which adopt sustainability in practice through tax benefits, subsidies, or low-interest loans so as to make it affordable for them to operate under these compliance conditions and become responsible players. In such ways, carbon emissions reducing firms and water-conserving businesses may be offered support and this will not become too much of an expensive issue to be focused upon and adopted by many more.
The other is training and capacity building on SMEs. This might be in the form of technical assistance, workshop trainings, and advisory in terms of getting the smaller companies to embrace sustainability, understanding what the sustainability-related regulations are, and thus following the same regulations. This would best be made possible through partnership with government, industry associations, and educational institutions to empower the SMEs with adequate information and resources for compliance with set standards of the environment and CSR.
The effectiveness of enforcement requires that the overseeing regulatory bodies improve. One can use technology to bolster monitoring mechanisms, and having technology in place may facilitate tracking whether compliance is in place or not. An example would be the employment of data analytics, reporting systems, and real-time monitoring to ease the way in which regulations are governed and provide clear information as to the sustainability performance of a company. This is how improved regulatory efficiency may assure the government that compliance with sustainability laws becomes of greater importance to companies.
The promotion of voluntary disclosure of sustainability practices can also enhance corporate accountability. Even though BRSR reporting is compulsorily done by the top listed companies, the encouragement of voluntary disclosure among others can be used to build a culture of transparency and accountability. Frameworks like the Global Reporting Initiative provide guidelines that companies can use in reporting on their efforts at sustainability, hence providing an opportunity for them to express their commitment to responsible business practices.
