Legal Underpinnings Drive ESG Amidst Global Flux

Abstract

The paper studies the complex global dynamics governing the Environment, Social, and Governance (ESG), including the evolving scope and structures of ESG frameworks. The impact of the significant expansion in the scope and spread of legal underpinning over the last decade studied along with the increase in strategic applications of ESG is analysed, with specific focus on the European Union, and assessment of impact on ESG and regulatory scenario in India. The accelerated alignment of reporting standards, post the release of Task Force on Climate-Related Financial Disclosures (TCFD) guidelines has been complemented by legal and regulatory progress globally. The gradual development of legal underpinnings has put ESG or business sustainability on a stronger footing, by providing binding mandates to transition towards sustainability, albeit in varying in strength and forms across jurisdictions. The paper studies the development of these legal underpinnings and analyses how it has been critical in ensuring progress on the ESG front and were critical in ensuring progress continued despite significant headwinds emerging of the Ukraine War and COVID-19, albeit in a slower but sustained manner. This contrasted with the scenario over the last four decades wherein vested interests could easily derail progress on climate change fronts in absence of legal underpinnings and binding mandates. This analysis is based on study of recent sustainability mechanisms, including study of the architecture of the Paris Agreement, the TCFD guidelines, the compliance-based European Union (EU) Sustainability Action Plan in EU, and other international regulatory developments, including in India’s BRSR, recent regulatory proposals by RBI and SEBI etc. Global financial investors’ strong push for ESG based risk-assessment and investments along with introduction of mandated ESG compliances for businesses and trade is pushing companies and countries with older to respond, which has important implication for India and Indian businesses.