Apart from avoiding non-compliance issues, India’s ESG Regulations can also benefit foreign firms in several ways. Adopting environmentally friendly practices, safeguarding the interests of workers and shareholders, and making efforts to give back to the community can help strengthen a company’s brand image. It can help them build customer loyalty, attract new investors, and as a result improve their financial standpoint. However, non-compliance to ESG regulations in India can result in penalties and even imprisonment. Thus, to mitigate such risks, partnering with environmental sustainability consulting firms in India like Tecnova can be the best solution. They have legal experts who can help foreign organizations understand all their ESG obligations and run operations with ease.

ESG Consultants & Sustainability Services in India – Tecnova

Given India’s growth prospects as a major global manufacturing hub, every major multinational business aims to grab a share of this country’s market. However, to start their operations here, they need to know India’s ESG regulations.
They are a set of regulatory guidelines that aim to promote responsible and sustainable business practices. The Environmental part deals with factors like pollution, climate change, waste management, resource depletion, etc. Social covers aspects like labor practices, human rights, and community impact. Whereas, Governance takes into account transparency, business ethics, board composition, etc.
For foreign firms, abiding by these ESG regulations is mandatory to maintain their social licenses and corporate social responsibility (CSR).

Understanding India’s ESG Landscape

To gain a thorough understanding of India’s ESG regulations, let’s divide it into three parts.

• Environmental

This section covers several laws which help the country take action on the environmental impact of industries. Some of the essential ones are as follows:

a. Waste Management Laws

In 2016, there was a revision of several waste management laws in India, to make them at par with the international standards, especially the European Union (EU). This was done mainly for Plastic Waste Management Rules, e-waste, and hazardous wastes.

They include incorporating Extended Producer Responsibility (EPR), which puts more responsibilities on the companies and manufacturers that sell their products in the Indian market.

Additionally, to minimize environmental impact throughout a product’s lifecycle, authorities are now implementing the “polluter’s pay” principle. Thus, companies need to make strategies for collecting, channelizing, and taking back the waste after their products’ life cycle ends.   

b. Penalties for Violating Environmental Acts

Violating any of India’s environmental acts is punishable by law. It can result in up to 5 years of imprisonment, which can increase to 7 years if the company continues the contravention for 1 year after its conviction.

Fines of up to USD 1,334 may be imposed in some cases. Additionally, both fines and jail terms can apply to the convicted party.  

• Social

When it comes to corporate social responsibility, India is one of the few nations that makes CSR expenditure and reporting mandatory for all companies. As per the Companies Act, 2013and the Companies Corporate Social Responsibilities Policy Rules, 2014, certain businesses having a specific net profit or turnover are under obligation to adhere to the sustainability reporting standards.

They must make a CSR Committee, spend a minimum of 2% of their average net profits on fulfilling CSR initiatives and include a yearly CSR report while publishing their annual board report.

• Governance

In India, the corporate governance framework is monitored by the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI). Moreover, sector-specific regulators may be present in some cases and make an impact on governance regimes.

India’s corporate governance framework focuses on the following aspects:

1. Safeguarding minority shareholders.
2. Maintaining accountability of a company’s management and board of directors.
3. Fulfilling corporate social responsibility objectives.
4. Providing adequate disclosures and timely reporting to shareholders.
5. Mandating the presence of a minimum proportion of independent directors on the boards of each organization.

ESG Compliance Framework for Foreign Businesses

In India, every company, domestic or foreign has to adhere to certain Environmental Impact Assessment (EIA) requirements. They help evaluate an organization’s probable environmental, social, and economic impacts during the planning phase of a project.

The EIA process in India involves the following:

1. Screening the project’s plan for location, development type, investment scale, and whether it needs statutory clearance.
2. Making a scope of its potential impacts, impact zones, mitigation methods, and monitoring needs.
3. Collecting baseline data or the area’s environmental data.
4. Predicting its probable impact in terms of – positive or negative, permanent or temporary, and reversible or irreversible.
5. Devising mitigation measures and filing an EIA report.
6. Conducting a public hearing to inform environmental and public groups of the EIA report.
7. Making decisions with the Impact Assessment Authority and other experts while keeping in mind the Environment Management Plan (EMP) and EIA requirements.
8. Monitoring and implementing the EMP through its various stages.
9. Assessing all possible alternatives, considering both process technologies and project location, and drawing up a mitigation plan along with an EMP.
10. Conduct risk assessment by performing inventory analysis and hazard probability.

Now, CSR includes voluntary activities on a company’s part for a better environment, better society, welfare of employees, etc. However, Section 135 of the Companies Act, 2013, mandates the contribution of a specific amount towards certain CSR activities.

They are as follows:

1. Programs or projects based on the activities that fall under Schedule VII of the above-mentioned Act.
2. Programs or projects undertaken by a company’s Board of Directors as per recommendations by its CSR Committee, covering activities in Schedule VII of the Act.

Foreign companies also need to adhere to several corporate governance regulations. They are as follows:

1. Maintaining books of accounts and financial statements.
2. Conducting annual general meetings.
3. Appointing auditors.
4. Maintaining compliance with corporate laws.
5. Making the necessary disclosures to stakeholders, shareholders, regulators and the public, along with adopting transparent practices.  

Additionally, there are several other points that foreign companies need to keep in mind to comply with Indian ESG regulations. To comprehend all of them, they need help from professionals who have the required experience in this field. Therefore, partnering with environmental sustainability consulting firms in India is recommended.

Now, while adhering to India’s ESG regulations, foreign firms can face several challenges. Some of them are as follows:

• Changing Regulatory Compliances

India’s regulatory compliances keep on changing from time to time. Thus, foreign companies should keep tabs on the changes in regulations and implement the same to avoid non-compliance issues. Moreover, they should hire legal experts who can help them properly understand the updated laws and address any challenges resulting from them.    

• Understanding Sector-Specific Compliances

Now, there are several industry segments like healthcare, pharmaceutical, telecommunications and finance, which have sector-specific regulatory compliances. Thus, foreign firms operating in them must stay informed of these laws and ensure their adherence to them.  

• Commercial and Contractual Compliances

While establishing partnerships with local manufacturers, foreign companies have to maintain several commercial and contractual compliances. This involves managing relationships, handling disputes, drafting agreements, conducting due diligence, and more. Moreover, they may need to take legal advice to mitigate compliance risks.

• Adhering to Data Privacy and Security Laws

India has several data privacy laws for protecting the personal and sensitive data of users. Thus, they need to employ strong data protection laws to safeguard user data. Additionally, they must adhere to data privacy regulations, gain data usage permissions, and stay aware of their data rights and obligations.   

• Complying with the AML Regulations

All companies operating in India must adhere to the Anti-Money Laundering (AML) regulations. They must conduct Know Your Customer (KYC) procedures for all of their clients, maintain proper documents, and report any suspicious transactions.  

• Dealing with Bribery and Corruption

Foreign organizations must maintain a zero-tolerance policy when it comes to corruption and bribery. They should follow all the rules and regulations prescribed by the Prevention of Corruption Act, 1988 and report any such activities either among their staff or business partners to the appropriate authorities.

Importance of Local Partnerships

Partnering with local businesses can also be an excellent way to abide by India’s ESG regulations. These companies have been operating in the market for several years and have a clear idea of the regulatory compliances, their requirements, challenges, etc. They can also advise firms on the most efficient ways to operate in this country, along with providing them with a customer base for their offerings.

Additionally, local partnerships can help foreign firms mitigate issues of customer reach and ensure last-mile connectivity. It is also an effective way to sustainably source raw materials, gain access to skilled labor, and understand the requirements of Indian consumers.

However, partnering with a reliable firm can be a challenging task for a foreign company which is new to the Indian market. Thus, hiring environmental sustainability consulting firms in India like Tecnova is advisable.

REFERENCE
Understanding India’s Environmental, social, and corporate governance (ESG) Landscape
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