New Delhi | The corporate affairs ministry should set up an ESG oversight body to actively combat greenwashing activities and also put in place penal provisions for fraudulent ESG claims, according to a Parliamentary panel.
Generally, greenwashing refers to claims by companies about any product or service having a climate-friendly impact.
ESG (Environmental, Social, and Governance) principles are part of the Companies Act, 2013.
In its report tabled in Parliament on Monday, the Standing Committee on Finance mentioned the ministry's demurral against establishing a dedicated ESG oversight body, citing that the prevailing disclosure-based regime, underpinned by a company board's accountability and extant penal provisions, constitutes an adequate monitoring mechanism.
Against this backdrop, the panel urged the ministry to "establish a dedicated ESG oversight body for actively combating greenwashing through specialised forensic expertise" as well as formulate sector-specific guidelines and extend targeted support to Micro, Small, and Medium Enterprises (MSMEs).
Besides, it should be ensured that there is "expeditious and deterrent application of penal provisions against fraudulent ESG claims," the action-taken report said.
"The Committee are of the view that while Section 166(2) provides a broad stroke, a direct and unambiguous legislative mandate will elevate ESG considerations to a non-negotiable strategic imperative for Boards, providing a clear legal bedrock for accountability in integrating sustainability into core business strategies, thereby transitioning from mere disclosure to fundamental corporate responsibility," it noted.
According to the committee, there is a need for statutory amendments to the Companies Act, 2013, to explicitly enshrine ESG objectives as integral components of Directors' fiduciary duties.
The recommendations are part of the panel's action taken by the government on the observations/recommendations contained in the 10th report of the Standing Committee on Finance on 'Demands for Grants (2025-26) of the Ministry of Corporate Affairs'.
Meanwhile, the committee has asked the ministry to develop a proactive and multi-pronged strategy to combat financial crimes at their genesis as well as bolster the investigatory and prosecutorial efficacy of the Serious Fraud Investigation Office (SFIO).
Also, it has urged the ministry to accelerate hiring at the National Financial Reporting Authority (NFRA) as well as put in place a "truly transparent and result-oriented CSR oversight system".
Under the Companies Act, 2013, a certain class of profitable companies is required to shell out at least 2 per cent of their three-year average annual net profit towards Corporate Social Responsibility (CSR) activities.
The ministry is implementing the Act.