India’s pursuit of sustainable development requires a coherent framework of accountability across all stakeholders, particularly state-run entities that command massive resources and public trust. The Environmental, Social, and Governance (hereinafter “ESG”) compliance requirements placed on Public Sector Undertakings (hereinafter “PSUs”) continue to be a concerning regulatory grey area.[1] Many PSUs are still free from ESG disclosure requirements, even though the Securities and Exchange Board of India (hereinafter “SEBI”) requires Business Responsibility and Sustainability Reporting (hereinafter “BRSR”)[2] for the top 1,000 listed entities by market capitalisation. The larger goals of social justice, environmental preservation, and moral leadership are all compromised by this selective compliance, particularly in light of the substantial public funding invested in PSUs.
The regulatory vacuum pertaining to PSUs’ ESG requirements is critically examined further. The article looks at the ramifications of this exemption, how it can go against legislative and constitutional requirements, and how India’s strategy stacks up against others around the world. In order to guarantee that PSUs are not only open but also accountable, the study ends with recommendations for closing the legal and policy gaps.
Understanding ESG and the BRSR mandate in India
ESG is the term for the collection of operational guidelines used by socially conscious investors to evaluate possible investments. Environmental criteria take into account how well a business takes care of the environment. Social criteria look at how it handles its connections with consumers, suppliers, workers, and the communities in which the business works. Leadership, executive compensation, audits, internal controls, and shareholders’ rights are all aspects of governance.
To improve ESG disclosures, SEBI replaced the previous Business Responsibility Report (BRR) in May 2021 with the BRSR. Starting in FY 2022-2023, the top 1,000 listed businesses by market capitalisation are required to comply with the BRSR.[3]
Under international frameworks as the Task Force on Climate-related Financial Disclosures (hereinafter “TCFD”)[4], SASB (Sustainability Accounting Standards Board),[5] and GRI (Global Reporting Initiative)[6], BRSR[7] incorporates ESG metrics into the compliance framework. There is a clear discrepancy because a number of PSUs, particularly unlisted ones, do not come under the required scope.
Public Sector Undertakings and ESG Non-Compliance
PSUs are state-owned businesses or government-owned firms established to conduct business on behalf of the government. PSUs have a big influence on India’s socio-economic and environmental landscapes since they own businesses in industries including mining, energy, transportation, and banking.
PSUs frequently benefit from monopoly-like advantages and run on public funds. Large populations and ecosystems are impacted by their activity. However, they are free to ignore sustainable practices because they are not required to make ESG disclosures, for instance, A PSU, Coal India Limited, has been under fire for its unsustainable mining methods and environmental infractions.[8] The public has criticised Oil and Natural Gas Corporation (hereinafter “ONGC”) for its lack of community engagement initiatives and oil spills. [9]
The Indian government supports international green initiatives such as the SDGs and the Paris Agreement. However, its own business is not subject to the same requirements. In addition to being ineffective administratively, these double standards damage public confidence and go against India’s promises.
Legal and Constitutional Analysis
Article 21: The Hon’ble Supreme Court (hereinafter “SC”) has interpreted Article 21[10] to include the right to a clean and healthy environment (in Subhash Kumar v. State of Bihar[11]). State-run organisations ought to be held to an even higher standard if private companies are held responsible for their harmful actions.
Article 14: Exemption of PSUs from ESG disclosure while mandating it for private firms creates an unequal field, violating the equality principle under Article 14.[12] As held in E.P. Royapa v. State of Tamil Nadu,[13] the unequal treatment has no discernible differentia and has no logical connection to a valid state goal.
Corporate Governance Norms under the Companies Act 2013: Directors are required under section 134 of the Companies Act, 2013[14], to provide an explanation of the company’s current situation, which may be interpreted to incorporate ESG considerations. PSUs ought to abide by the basic requirement since they are corporations. Inconsistencies with this obligation are permitted by SEBI’s carve-outs.
Directive Principles and Sustainable Development: Since the state must set an example, the orality of environmental stewardship is undermined when its own entities are excluded from sustainability standards. Article 48A [15]and Article 51A(g) of the constitution [16]advocate environmental protections and citizen duty towards nature.
Comparative perspectives
Many authorities around the world acknowledge that public sector organisations need to adhere to the same, if not more stringent, ESG criteria. Large corporations and financial institutions, as well as certain government agencies, are now required to make ESG disclosures in the UK under the TCFD.[17] The “Greening Government Commitments” were also adopted by the UK government, which mandates that public departments enhance their ESG performance and lower their greenhouse gas (GHG) emissions.[18] With the goal of achieving consistent, standardised sustainability disclosures, the European Union’s Corporate Sustainability Reporting Directive (CSRD)[19] extends ESG responsibilities to big business, including publicly traded organisations. Crown Corporations must publish yearly reports evaluating the environmental and social implications of their operations, and Canada requires them to make ESG-related disclosures. China has set ESG standards for all listed companies, including state-owned enterprises (SOEs), which are viewed as vehicles for supporting green growth and other state objectives, despite unequal enforcement. These instances show that there is a universal and global recognition that all significant organisations, especially those that receive public funding, must be held accountable for ESG.
Another useful example is Australia, where state-owned businesses must submit reports in accordance with the Commonwealth Government’s “Sustainability Development Strategy[20].” Federal monitoring has made sure that significant public entities like Australia Post and NBN Co. incorporate ESG measures into their reporting systems, even though compliance is still optional in some ways. Under the King IV Code, South Africa also requires integrated reporting, including ESG metrics, for all businesses, including state-owned ones. The code places a strong emphasis on integrated thinking, accountability, and stakeholder inclusion. Under the direction of Temasek Holdings, Singapore’s Government Linked Companies (GLCs) actively integrate sustainability objectives and report their social and environmental effects in accordance with international standards like SASB and GRI. These examples demonstrate a shared global understanding that ESG accountability must encompass all influential institutions, particularly those funded by the public. In many of these countries, public sector enterprises have become benchmarks of responsible business conduct, challenging the notion that state entities should be insulated from transparency and scrutiny.
The impact of the ESG exemption
PSUs’ unregulated industrial operations like steel, coal, and oil greatly increase pollution, deforestation, and water contamination. Due to their lack of involvement in the ESG framework, these effects go unreported and unpunished. Furthermore, PSUs have frequently been observed ignoring fair employment norms, community interests, and rehabilitation efforts in areas impacted by their projects. Social justice is delayed when PSUs are excluded from ESG frameworks, which seek to address such disparities.
India’s PSUs’ inconsistent policies could lower the country; worldwide ESG ratings. India’s credibility in climate talks, foreign investments, and sovereign ratings may all be impacted by this. ESG non-compliance can also result in wasteful resource use, legal action, and public outrage, all of which can tangentially raise the exchequer’s financial burden. All things considered, the ESG exception compromises economic efficiency, social justice, environmental preservation, and reputational integrity.
The way forward
All PSUs, public and unlisted, should be covered under SEBI’s BRSR mandate. This can be implemented progressively with the aid of a guarded framework based on sectoral impact and scale. PSUs should be specifically included in the list of entities subject to ESG standards I legislative revisions to the Companies Act of 2013 and SEBI regulations. Transparency can be improved by requiring independent ESG audits for all PSUs carried out by third-party organisations certified by the government or registered with SEBI. The democratic spirit of public accountability would be in line with the established procedures for routine citizen audits and the requirement that yearly sustainability reports be presented to Parliament. PSU exclusions from ESG can be contested through Public Interest Litigations (hereinafter “PILs”), particularly when the fundamental rights outlined in Articles 14 and 21 are in jeopardy. Courts could guide policy reforms through binding precedents. Lastly, government performance assessments should include ESG ratings as key performance indicators (KPIs), and PSU managers should be given incentives tied to ESG. Finally, ESG-linked incentives for PSU managers should be introduced, with government performance reviews incorporating ESG scores as key performance indicators (KPIs). At the same time, a public ESG disclosure dashboard, hosted by a government or autonomous agency, could visualise PSU compliance data in real-time, enhancing transparency and citizen engagement. Government tenders and contracts can also begin to mandate ESG disclosures as eligibility criteria, fostering a culture of responsible governance.
Conclusion
India’s public sector must evolve from being merely public in ownership to being publicly accountable in conduct. The exemption of PSUs from ESG norms is a policy inconsistency that undermines both democratic transparency and sustainability goals. With public funds at stake, these bodies owe a fiduciary duty not only to the government but also to every citizen.
To meet India’s constitutional guarantees and global climate responsibilities, ESG compliance must be institutionalised within the public sector. Bridging this regulatory gap is not a matter of administrative efficiency but of democratic integrity and long-term survival. In a world increasingly defined by ethical capitalism and green finance, India must ensure its PSUs do not become an anachronism of opacity and neglect. Closing this regulatory gap will ensure that India’s growth trajectory is not only fast but also fair, inclusive, and green.
[1] Nasrin Sultana, PSUs lag behind pvt companies on ESG performance, live mint (Nov. 22, 2021, 06:02 AM ), https://www.livemint.com/market/stock-market-news/psus-lag-behind-pvt-companies-on-esg-performance-11637519633932.html.
[2] Securities and Exchange Board of India (SEBI), BRSR Core- Framework for assurance and ESG disclosures for value chains, SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122, July 12, 2023, available at https://www.sebi.gov.in/legal/circulars/jul-2023/brsr-core-framework-for-assurance-and-esg-disclosures-for-value-chain_73854.html.
[3] Securities and Exchange Board of India (SEBI), BRSR Core- Framework for assurance and ESG disclosures for value chains, SEBI/HO/CFD/CMD-2/P/CIR/2021/562, May 10, 2021.
[4] Task Force on Climate-related Financial Disclosures, https://www.fsb-tcfd.org/.
[5] Sustainability Accounting Standards Board, https://sasb.ifrs.org/.
[6] Global Reporting Initiative, https://www.globalreporting.org/.
[7] Ibid 2.
[8] Mayank Aggarwal, Coal India Limited, world’s single largest coal producer, faltering on environmental norms: CAG report, Mongabay (Dec. 19, 2019), https://india.mongabay.com/2019/12/coal-india-limited-worlds-single-largest-coal-producer-faltering-on-environmental-norms-cag-report/#:~:text=Share%20this%20article%20*%20An%20audit%20by,well%20as%20on%20the%20entire%20coal%20sector.
[9] Press Trust of India, ONGC to pay Rs 50 lakh damages for crude oil leak in Bharuch district, Business Standard (May 21, 2023, 06:29 PM), https://www.business-standard.com/india-news/ongc-to-pay-rs-50-lakh-damages-for-crude-oil-leak-in-bharuch-district-123052600720_1.html.
[10] India Const. art. 21.
[11] Subhash Kumar v. State of Bihar AIR 1991 SC 420.
[12] India Const. art. 14.
[13] E.P. Royapa v. State of Tamil Nadu AIR 1974 SC 955
[14] The Companies Act, § 134, No. 18, Acts of Parliament, 2013 (India).
[15] India Const. art. 48A.
[16] India Const. art. 51A(g).
[17] Ibid 3.
[18] Department for Environment, Food & Rural Affairs and Cabinet Office, Greening Government Commitments (Dec. 14, 2016) https://www.gov.uk/government/collections/greening-government-commitments.
[19] European Union, Corporate Suitability Reporting, https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en.
[20] Balakrishna Pisupati, Commonwealth and Sustainable Development Goals, Research and Information System for Developing Countries (RIS), www.ris.org.in/sites/default/files/Publication/DP 225 Balakrishna Pisupati.pdf.
Author: Dimple
Juris Centre 