TerraLex Cross-Border Guide to Cross-Border Guide to ESG and Sustainable Finance

In India, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) prescribe certain ESG related disclosure obligations.

Under regulation 34(2)(f) of the LODR Regulations mandates the top 1,000 (one thousand) listed entities by market capitalization in India to submit a “Business Responsibility and Sustainability Report” (“BRSR”), to make certain ESG related disclosures such as participation and inclusion of women, differently abled workers, percentage of capex investments in technologies to improve environmental and social impacts of the company, energy consumed from renewable sources, disclosure pertaining to emissions, green credits generated or procured, etc. Some of these disclosures under BRSR also include disclosures pertaining to value chain partners of the reporting company such as adverse impact of the value chain partners, percentage of value chain partners assessed for environmental impacts etc.

In addition to the above, the LODR Regulations also provide for reporting against a framework called the "BRSR Core" framework which is a subset of the BRSR framework. The BRSR Core includes disclosures pertaining to a specific set of parameters, relevant to the Indian context as an emerging market. To address the integrity of the disclosures made, disclosures are required to be backed by assurances or third-party assessments. Reporting requirements for disclosures in relation to the supply chain partners (on a voluntary basis) has also been streamlined to include supply chain partners individually comprising 2% (two per cent) or more of purchases or sales (by value), or 75% (seventy-five per cent) of purchase or sale (by value). Disclosures under the BRSR Core framework are also required to be made in accordance with the Industry Standards on Reporting of BRSR Core.

At present, this is the only ESG specific statutory disclosure requirement in India, which is only applicable to the top 1,000 (one thousand) listed companies by market capitalization. However, it may be noted that recently several large, listed companies (other than the top 1000) have started to voluntarily comply with the above requirement, even though it is not applicable to them.

In addition, through a recent amendment to the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”), by omitting Regulation 26 (which governed green debt securities), SEBI has now introduced the concept of ‘ESG debt securities’, which has broadened the scope of sustainable investments in India, transitioning to a more holistic approach to ESG. Unlike the previous regime of green debt securities under the NCS Regulations, which primarily supported investments in projects supporting the environment, the new ESG debt securities framework covers a wider range of instruments such as green debt securities, social bonds, sustainability bonds, sustainability-linked bonds, or any other type of bonds, that are issued in accordance with such international frameworks as adapted or adjusted to suit Indian requirements. However, the disclosure framework in relation to issuance of ESG debt securities is yet to be notified by SEBI.

For private companies, while there are no separate ESG disclosure obligations, some existing laws mandate companies to make certain disclosures in relation to matters that fall within the ambit of ESG (even though they are not categorized specifically to be ESG-driven).

For instance, one such disclosure requirement is set out in Section 134 of the Companies Act 2013 which requires the following information to be disclosed in the financial statement of the company, which is filed with the Indian Ministry of Corporate Affairs as a part of the company’s annual compliance requirements:

• Information regarding steps taken towards conservation of energy for utilizing alternate sources of energy and capital investment on energy conservation equipment.
• Efforts made towards technology absorption and the associated benefits derived like product improvement, cost reduction etc.
• Statement regarding compliance with laws prohibiting sexual harassment.
• A statement indicating the development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company.
• Details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year.

Similar disclosures are also mandated under environmental laws and employment laws. Companies are required to submit annual environmental statements to their respective state pollution control boards for the authority’s continued assessment of the company’s consents to operate. The environmental statements are required to include information on the following:

• Water and raw material consumption
• Air and water pollution discharged to the environment;
• Emissions of hazardous wastes from their processes or pollution control facilities;
• Waste disposal practices adopted; and
• Impact of pollution control measures on conservation of natural resources and on the cost of production.

Different central and state employment related laws mandate an employer to publish, at conspicuous places within the establishments itself, certain information such as: categories of workers employed; the break-down of the number of men and women employed; minimum rates of wages paid to each category of worker; abstracts from certain specific labour legislations, as applicable; and policies or provisions catering to any persons with disabilities employed.

Yes, there are some important voluntary disclosures which are not prescribed under any statute but still hold significance. We have discussed these below.

National Voluntary Guidelines for Responsible issued by the Indian Banks Association Financing These guidelines provide for voluntary disclosures based on eight principles, such as:

Principle: Ethical conduct and E&S governance Disclosures regarding promotion of ethical governance within the organisation and across its value chain, establishment of governance structures and processes to oversee ESG integration in the organisation’s growth strategy and operations, redress of stakeholder complaints, roadmap for action and disclosure and reporting on action taken.

Principle: Integration of E&S risk management in business activities Disclosures regarding board oversight of ESG risk assessment framework for operational and portfolio performance and responsiveness to ESG impact of sectors where on-going or potential lending and investment of financial institution is channeled.

Principle: Minimising environmental footprint in internal operations Disclosures regarding systems to monitor and reduce resource use and waste in internal operations, quantifiable targets of improvement through technological and nontechnological measures.

Principle: Environment friendly products, services, and investment Disclosures regarding strategy, initiatives and products that address global environmental issues such as climate change, global warming, etc., lines of credit and investment in clean technology, energy efficiency, renewable energy climate mitigation and adaptation projects and examples of collaboration for these measures.

Principle: Enabling inclusive human and social development Disclosures regarding products and services which have integrated social impact parameters into their design, and which target the underserved sections of society, steps taken to ensure that financing schemes and development initiatives are sustainable and successfully adopted by the targeted stakeholders.

Principle: Stakeholder engagement Disclosures regarding systematic identification and engagement with internal and external stakeholders in relation to business operations with a focus on the disadvantaged and integration of stakeholder identification and engagement, deal appraisal as well as monitoring through the life cycle of the investment.

Principle: Commitment to human rights Disclosures regarding clear policies and practices of human rights within the organisation and across its value chain, including portfolio clients with a special focus on the rights of the disadvantaged and appropriate grievance redressal systems and resolution of cases, if any.

Principle: Disclosures Disclosures regarding systematic processes for disclosure and reporting with a focus on stakeholder engagement and specific milestones for key performance indicators with timelines under the principles.

The Ministry of Corporate Affairs ("MCA") released the 'National Guidelines on Responsible Business Conduct' in 2018 ("MCA Guidelines"). The MCA Guidelines provide for voluntary disclosures relating to its economic, environmental, and social impacts. The disclosures consist of three sections such as general disclosures which cover operational, financial and ownership related information, management and process disclosures which cover the structures, policies, and processes to integrate the guidelines and principle wise performance indicators, to measure performance of these businesses pursuant to the core elements of its principles.

National Guidelines on Responsible Business Conduct The National Guidelines on Responsible Business Conduct (“NGRBC”) introduced by the MCA, promotes responsible business practices. Previously, the MCA, in 2011 had released a set of guidelines called the National Voluntary Guidelines on the Social, Environmental and Economic responsibilities of businesses (“NVG”). The NGRBC was a result of MCA's endeavour to align the NVGs with the sustainable development goals. By design, the NGBRC may be relied on by all businesses, agnostic of their ownership structure, size, sector of operation or location. The NGRBC provide for voluntary disclosures to be made by businesses under heads of general disclosures, management and process disclosures and disclosures against the principles set out under the NGBRC The NGRBC also include an indicative list of various laws in India, mapped against the 9 different principles under which disclosures may be provided under the BRSR.

Bombay Stock Exchange's guidance document on ESG disclosures These guidelines are applicable to all companies listed on the Bombay Stock Exchange. They provide for voluntary disclosures on a comprehensive set of ESG key performance indicators, such as environmental impact, energy consumption, waste management, human rights policy, gender parity ratio at workplace, local procurement, gender diversity on board, business ethics and code of conduct, and compliance with sustainability reporting frameworks.

NSE Prime registration norms The National Stock Exchange (“NSE”) of India has launched an initiative pertaining to corporate governance, which companies listed on the NSE can adopt voluntarily, called 'NSE Prime'. NSE Prime is a framework to set higher standards for corporate governance. NSE Prime companies are companies which may register themselves with the core elements of its principles, in accordance with the Prime Registration Norms. Under the Prime Registration Norms, every NSE Prime Company should publish, on a three-year rolling basis, a roadmap / action plan for enhancing overall ESG performance.

India Business and Biodiversity Initiative (IBBI) The India Business & Biodiversity Initiative (IBBI) is a national platform which aims to address biodiversity related considerations into business operations and value chains. It has formulated a '10-point declaration' ("Declaration"). Businesses may, on a voluntary basis join the IBBI by adopting the Declaration which is based on the following 10 factors:

• Mapping biodiversity interfaces with business operations
• Considering the impacts of business decisions on biodiversity
• Designating an individual within the organisation as biodiversity champion
• Including the applicable biodiversity aspects in the environmental management systems
• Engaging in policy advocacy and dialogue with Government, NGOs and academia on biodiversity concerns
• Enhancing awareness on biodiversity within the organisation
• Setting objectives and targets for biodiversity management
• Assessing biodiversity risks and opportunities
• Encouraging relevant stakeholders to support better biodiversity management
• Initiating the valuation of relevant biodiversity and eco-system services

Businesses which are signatories to the Declaration are required to submit biennial disclosure reports that document their progress in implementing the above principles. Such disclosures include compliance with legal requirements (such as project approvals, water use permissions, and air emissions clearances), the conduct of environmental impact assessments for new projects, biodiversity monitoring at operational sites, management of business activities located in proximity to 'protected areas' (such as national parks, wildlife sanctuaries, and eco-sensitive zones), system or processes in place to integrate biodiversity aspects into the decision-making, etc.

The BRSR is the prescribed framework for ESG disclosures to be made by the top-1000 listed companies by market capitalization. The BRSR framework allows for the disclosing entities to cross-refer disclosure requirements from internationally accepted standards such as GRI, SASB, TCFS etc., to permit interoperability.

In addition, companies making voluntary disclosures may use the framework issued by Indian Banks Association, NSE or the BSE which are also based on GRI & SASB recommendations.

There are no specific compliances or obligations under Indian laws which are categorized as "ESG obligations", except the BRSR reporting disclosure requirements under the SEBI LODR Regulations. Therefore Under the LODR Regulations, there are no specific statutory provisions other obligations which require any action on part of companies in India towards the discharge of ESG obligations per se. However, there are compliances and/or obligations under several Indian laws in relation to matters that fall within the ambit of ESG, even if they are not specifically categorized as "ESG laws". Some such compliances/laws are listed below.

• Obligations relating to handling of hazardous substances and emission of pollutants into the environment in excess of set standards under the Environmental Protection Act, 1986.
• Obligations relating to declaration of air pollution control areas and restrictions on use of certain industrial plants under the Air (Prevention and Control of Pollution) Act, 1981.
• Obligations relating to prohibition on use of water bodies for disposal of polluting matter under Water (Prevention and Control of Pollution) Act, 1974.
• Obligations relating to treatment and disposal of different categories of waste under the Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2016.
• Obligations under Section 135 of the Companies Act 2013, which mandates that companies which have a net worth, turnover, or profits above certain prescribed thresholds should constitute a Corporate Social Responsibility Committee.
• Obligations under Section 134 of the Companies Act 2013, which mandate companies to disclose in their financial statements any steps they have taken towards conservation of energy, implementation of risk management policy, etc.
• Obligations relating to provision of welfare facilities, humane working hours, intervals of rest, and extra wages for overtime under the Factories Act, 1948,
• Obligations which mandate employers to provide fixed minimum wages to their employees working in certain establishments under the Minimum Wages Act, 1948,
• Obligations relating to setting up a mechanism for expedient investigation and settlement of industrial disputes under Industrial Disputes Act, 1947,
• Obligations relating to payment of gratuity to employees who have completed at least 5 (five) years of service in establishments such as factories, mines, etc. under Payment of Gratuity Act, 1972,
• Obligations relating to payment of maternity benefit to women and allowance of leave during pregnancy and related events, such as, miscarriage, tubectomy, etc., and provision of nursing breaks and crèches under the Maternity Benefit Act, 1961,
• Penal provisions for bribing public servants under the Prevention of Corruption Act, 1988,
• Penal provisions for concealing, possessing, acquiring, or otherwise dealing in proceeds from a crime under the Prevention of Money Laundering Act, 1988.

**Carbon Credit Trading Scheme, 2023 ** The Carbon Credit Trading Scheme 2023 ("Scheme") was notified by the Government of India under the Energy Conservation Act, 2001. The Scheme sets out the necessary framework and the roles of different stakeholders for the development and functioning of the Indian Carbon Market ("ICM") and obtaining carbon credit certificates ("CCCs").

The Scheme recognises 2 (two) categories of entities:

(a) Obligated Entities: Registered entities that are engaged in certain sectors as identified by the Bureau of Energy Efficiency (namely aluminium, chlor alkali, cement, fertiliser, iron & steel, pulp & paper, petrochemicals, petroleum refinery and textile). Obligated Entities are mandatorily required to comply with Greenhouse Gas ("GHG") emission intensity reduction targets (“Emission Targets”) in line with India’s Nationally Determined Contributions ("NDC"), (as may be notified and in the manner prescribed by the Central Government under the Scheme) in their projects and disclose the same in their project activities to obtain CCCs.

(b) Non-obligated Entities: Entities excluding Obligated Entities may voluntarily register their projects and comply with the prescribed Emission Targets in exchange for CCCs.

There are no specific rules under Indian laws which can be categorised as "ESG rules", except the BRSR disclosure and reporting requirements under the SEBI LODR Regulations. These disclosure requirements apply only to Indian entities.

However, there are certain disclosure requirements under the SEBI LODR Regulations which involve disclosure backed by assurances pertaining to “value chain” partners. In this regard, SEBI has deferred the requirement of undertaking mandatory ESG related disclosures by value chain partners of the disclosing entity, as required under the BRSR Core from the earlier timeline for implementation of FY 2024-2025 to FY 2025-2026. These requirements will apply to the top 250 listed companies by market capitalization, on a voluntary basis. This was undertaken to enable value chain partners to record such data in real time without having a disruptive impact on their operations.

While the above disclosures themselves are required to be made by the reporting entity, the recording of such ESG data can only be done by the supply chain partners. In case some supply chain partners for the reporting entities are outside of India, practically they will still be required to furnish the information pertaining to the disclosures required in respect of value chain partners to the Indian reporting entity.

Guidelines for Prevention and Regulation of Greenwashing, 2024 The Central Consumer Protection Authority (under the Department of Consumer Affairs) (“CCPA”) introduced the Guidelines for Prevention and Regulation of Greenwashing, 2024 (“Guidelines”) under the Consumer Protection Act, 2019, effective from 15 October 2024. The Guidelines expressly addresses and prohibits “greenwashing” and false environmental claims.

The Guidelines are applicable to:

(a) all environmental claims; and (b) to a manufacturer, service provider, product seller, advertiser, or trader whose goods, products or services are the subject of an advertisement, or to an advertising agency or endorser whose service is availed for the advertisement of such goods, products or services (“Applicable Entities”).

Consumer Protection Act, 2019 Under the Consumer Protection Act, 2019, (“CPA”) consumers have a general right to seek redressal against unfair trade practices, including misleading advertisements. While the term “greenwashing” was not expressly defined under the CPA itself, such deceptive environmental claims have been recognised as forms of misleading advertising and unfair trade practices under the CPA read with the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022. As mentioned above, the CCPA on 15 October 2024 has issued the Guidelines for the prevention and regulation of greenwashing, marking the first instance of a dedicated legal framework to specifically define and regulate greenwashing in India.

No. India does not have a specific ESG general legal framework or obligations that need to be imposed on suppliers.

If positive ESG efforts cause monetary losses to a company and if its shareholders are not in agreement with the decisions or approach of the company towards ESG, they may hold the concerned director liable for such actions and may remove him from directorship.

There are no specific rules under Indian laws which can be categorized as "ESG rules", except the BRSR reporting requirements under the SEBI Regulations. However, there are rules under several Indian laws which regulate matters that fall within the ambit of ESG, even if they are not specifically categorized as "ESG rules". In this context, if there is any non-compliance with such laws causes losses to the company or the shareholders/investors, the shareholders/investors of the company may act against the directors responsible for such non-compliance

Since there are no laws, rules or regulations in India which can be categorized as “ESG rules” (except the BRSR reporting requirements under the SEBI Regulations), it is unlikely that a customer, creditor or other third party, would suffer a direct loss attributable to an ESG related act or omission by a company.

There are no specific Indian laws which can be categorized as “ESG rules”, except the BRSR reporting requirements under the SEBI Regulations. However, there are several Indian laws that govern matters which fall within the ambit of ESG, even if they are not specifically categorized as “ESG laws”. Some such laws are listed below:

• The Environmental Protection Act, 1986.
• The Air (Prevention and Control of Pollution) Act, 1981.
• The Water (Prevention and Control of Pollution) Act, 1974.
• The Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2016.
• Provisions in the Companies Act 2013 relating to corporate social responsibility.
• Provisions in the Factories Act, 1948 relating to employee safety and health.
• Guidelines for Prevention and Regulation of Greenwashing, 2024
• The Minimum Wages Act, 1948.
• The Industrial Disputes Act, 1947.
• Payment of Gratuity Act, 1972.
• Maternity Benefit Act, 1961.
• The Prevention of Corruption Act, 1988.
• The Prevention of Money Laundering Act, 1988.
• The Competition Act, 2002.

No.

**Framework for acceptance of green deposits ** This framework issued by the RBI applies to all scheduled commercial banks (including small finance banks, but excluding regional rural banks, local area banks, and payments banks), as well as all deposit-taking NBFCs, including housing finance companies, that are registered with the RBI (collectively referred to as "Regulated Entities" or "REs").

The framework regulates the issuance of green deposits by REs with the objective of protecting the interest of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and ensuring the flow of credit to green activities / projects. For the funds raised by REs by issuances of green deposits, this framework regulates the allocation of such proceeds based on the Indian green taxonomy. The framework also sets out illustrative examples of ESG impact indicators (such as total renewable energy capacity, GHG emission avoided, GHG emission reduced etc.)

Sovereign Green Bonds framework In November 2022, the Government of India introduced the Sovereign Green Bonds framework to mobilise resources for green infrastructure projects. The framework has been aligned with the International Capital Market Association's Green Bond Principles (2021). The framework outlines the use of proceeds for public sector projects that promote energy efficiency, reduce carbon emissions, and enhance climate resilience. It establishes a Green Finance Working Committee (GFWC) to oversee project evaluation and selection, ensuring transparency and accountability. The framework also mandates clear guidelines for the management of proceeds and regular reporting on the allocation and impact of funded projects. This initiative aims to attract global and domestic investments in environmentally sustainable projects, reinforcing India's commitment to its climate goals.

In addition to this, the RBI via its circular dated 7 November 2024 has stated that the sovereign green bonds of 10 (ten) year tenure issued by the Government of India in the second half of the fiscal year 2024-25 will be eligible as ‘specified securities’ under the fully accessible route.

**Industry Standards on Reporting of Business Responsibility and Sustainability Report (BRSR) Core introduced by the Industry Standard Forum (ISF) ** On 20 December 2024, SEBI issued a circular applicable to listed entities required to make disclosures under the BRSR Core as mandated under the LODR Regulations. This circular refers to industry standards formulated by ASSOCHAM, FICCI and CII under the aegis of the Stock Exchanges (“Industry Standard”). Listed entities are required to follow the Industry Standard to ensure compliance with SEBI requirements on disclosure of BRSR Core, with the objective of promoting ease in implementation and standardization. These reporting standards took effect from FY 2024–25 onwards, reinforcing transparency and corporate responsibility in sustainability disclosures.

Master Circular for ESG Rating Providers (“ERP Master Circular”) On 16 May 2024, SEBI issued a Master Circular consolidating regulatory requirements under the SEBI (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”). The ERP Master Circular applies to all registered ESG ratings providers. The ERP Master Circular establishes comprehensive guidelines for registration, governance, operations, and disclosures related to ESG rating providers. These include seeking prior approval for change in control of ESG rating providers, governance norms, permitted activities for ESG rating providers etc.

While the broad framework for ERPs has been laid down in the CRA Regulations, the disclosure requirements and obligations are being specified through the ERP Master Circular, which will enable the industry and other users to have access to all the applicable directions to ERPs at one place.

Sustainable Finance Framework in the Indian Securities Market by amendments to SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 On 11 December 2024, SEBI issued the SEBI (Issue and Listing of Non-Convertible Securities) (Third Amendment) Regulations, 2024 (“NCS Amendment Regulations”) to modify the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”). A key change introduced through the amendment is the omission of the chapter on ‘green debt securities’ (which only pertained to instruments linked with environmental sustainability) and introduction of the concept of ‘Environmental, Social, and Governance (ESG) Debt Securities’ under Regulation 2(1)(oa) of the NCS Regulations. This new category is wider than green debt securities as it encompasses various sustainable financial instruments, such as social bonds, sustainability bonds, sustainability-linked bonds as well as green debt securities. By introducing a category of securities which encompasses a wider spectrum of securities than the erstwhile green debt securities, SEBI has indicated movement towards holistic regulation of sustainability related financial instruments. This could potentially reinforce ESG driven investors by regulating the usage of proceeds of such ESG Debt Securities. The introduction of the ESG Debt Securities is to enable issuers of such instruments to tap the market to raise funds through issuance of social bonds, sustainability bonds and sustainability linked bonds.

Below are some voluntary sustainable finance and investment frameworks followed in India (not exhaustive):

National Voluntary Guidelines for Responsible Financing These guidelines, issued by the Indian Banks' Association, are in the form of a voluntary instrument which sets out principles for integration and implementation of ESG factors with the business operations of banks and other financial institutions.

The principles set out in these guidelines are ethical conduct and E&S governance, integration of E&S risk management in business activities, minimising environmental footprint in internal operations, environment friendly products, services, and investment, enabling inclusive human and social development, stakeholder engagement, commitment to human rights and disclosures.

Bombay Stock Exchange's Guidance Document on ESG Disclosures These guidelines are set out for all companies listed on the Bombay Stock Exchange. They provide a comprehensive set of ESG key performance indicators, such as, energy consumption, waste management, human rights policy, local procurement, gender diversity on board, business ethics and code of conduct, and compliance with sustainability reporting frameworks.

No, financial institutions, investment advisers and/or pension institutions in India are not required under law to consider ESG factors when making investment decisions and recommendations. However, in order to mitigate risks of mis-selling and greenwashing certain mutual funds which launch schemes under ESG investing are required basis a SEBI Circular dated 20 July 2023, to invest only in companies which are reporting on comprehensive BRSR disclosures and have an obligation to invest up to 65% of its assets under management in companies which report under BRSR and also provide assurances on BRSR Core disclosures, with the remaining being invested in companies having BRSR disclosures.

Further, the Reserve Bank of India encourages Indian banks to extend loans towards financing renewable energy projects by categorising 'renewable energy' as a 'priority sector' for lending. Specifically, financing of renewable energy-based power generators and public utilities are eligible for classification as priority sector lending, in an (indirect) effort of re-directing investor focus towards sustainable investment options.

There are no specific tax benefits/incentives in India exclusively designed for integrating Environmental, Social, and Governance ("ESG") factors at a general level. However, the Indian government ("Government") has been taking initiatives to promote sustainable development and responsible investing. Some of the direct and indirect tax incentives and benefits that can be applicable to ESG-focused investments or activities are as follows:

Tax benefits for renewable energy: The Government provides tax incentives for investments in renewable energy projects. Benefits such as accelerated depreciation, GST concessional rates and income tax exemption on profits from renewable energy generation. Investing in renewable energy can align with the environmental aspect of ESG. Businesses which utilize renewable energy devices such as solar panels, windmills, bio-gas engines, etc. are eligible for accelerated depreciation under the Income-tax Act, 1961 (“IT Act”), which may allow them to recover up to 60% of their costs in the first year. The IT Act also provides for a lower tax rate of 10% on the income generated by way of sale of carbon credits.

Additionally, a tax holiday is provided for 5 consecutive years on business incomes derived from collection and processing or treatment of biodegradable waste for certain purposes (generating power, bio-fertilizers, bio-pesticides, etc.).

Tax benefits for green buildings: The Government provides tax incentives for green building projects certified by recognized agencies. These incentives may include deductions on property taxes and accelerated depreciation of up to 60% on pollution control equipment under the IT Act.

**Consumer Protection Act, 2019: ** The Central Consumer Protection Authority (under the Department of Consumer Affairs) issued the Guidelines for Prevention and Regulation of Greenwashing, 2024 (“Guidelines”) under the Consumer Protection Act, 2019, which inter-alia prohibits false or misleading environmental claims and greenwashing. The Guidelines require the manufacturer, service provider, product seller, advertiser, trader, endorsers and/or advertising agencies to substantiate their environmental claims with credible evidence. For example, the use of generic terms such as “clean,” “green,” “eco-friendly,” “eco-conscious,” “carbon-neutral,” “natural,” “organic,” “sustainable,” and “regenerative” must be supported by credible, accurate, and accessible qualifiers, disclosures, and quantifiable data to substantiate the environmental claim.

While the Guidelines do not prescribe penalties for ‘greenwashing’, the penalties prescribed under the Consumer Protection Act, 2019 apply in case of a violation.

Under the Consumer Protection Act, 2019, non-compliance with any direction issued by the CCPA may result in imprisonment of up to 6 (six) months or fine of up to INR 20,00,000 (twenty lakh rupees) or both.

Any false or misleading advertisements may result in imprisonment of up to 2 (two) years and a fine of up to INR 10,00,000 (ten lakh rupees). For any subsequent contravention the prescribed penalty is imprisonment of up to 5 (five) years, or fine of up to INR 50,00,000 (fifty lakh rupees).

Engagement in any false or misleading advertisements may result in a prohibition from endorsing for up to 1 (one) year for the initial contravention and up to 3 (three) years for subsequent contraventions.

Further, set out below are other relevant laws, rules, regulations and/or regulatory circulars, which may apply to greenwashing:

SEBI Circular dated 3 February 2023: This circular prescribes practices for issuers of green debt securities, such as monitoring of funds raised, reduction of adverse environmental impact and contributing towards sustainable economy, non-utilisation of funds raised for any purposes beyond the definition of green debt securities, to not use misleading labels, hide trade-offs or cherry pick data from research to highlight green practices and quantify negative externalities associated with the utilisation of the funds raised.

Advertising Standards Council of India (“ASCI”): While not a legal authority, ASCI is a self-regulatory body that sets guidelines and standards for advertising practices in India and is recognised by several regulators and government bodies such as Department of Consumer Affairs, Food Safety and Standards of India, Department of AYUSH, and Insurance Regulatory and Development Authority of India.

On 24 January 2024, the ASCI issued its “Guidelines for Advertisements Making Environmental/Green Claims” (“ASCI Guidelines”) to prevent false pro-environment claims, commonly referred to as greenwashing, which have been observed across various sectors. These guidelines, effective from 15 February 2024, are designed to ensure that environmental claims made by advertisers are reliable, verifiable, and transparent. This move responds to the increasing demand from consumers for products and services that minimise environmental harm or have a positive environmental impact. With the proliferation of businesses making such claims, it is essential that these assertions are substantiated and trustworthy.

Complaints against misleading advertisements (including those which include greenwashing) can be filed with ASCI, which investigates violators and issues warnings or corrective advertisements. In the past, ASCI has also issued orders relating to green claims and environmental claims, noting that such claims violate Chapter I of the Code for Self-Regulation in Advertising (“ASCI Code”). Further, while the ASCI does not prescribe penal consequences, violations of the ASCI Code and ASCI Guidelines may result in reputational harm and business hurdle for entities found to be in breach of the aforementioned guidelines.

The Competition Act, 2002: The Competition Act regulates anti-competitive practices in India. If a company's greenwashing practices are deemed to be anti-competitive, such as creating a false impression of environmental consciousness to gain an unfair advantage, the Competition Commission of India (CCI) can investigate and take action against the company.

Environmental Protection Act 1986 (“EPA”): The EPA specifically provides for the protection and improvement of the environment, stipulating corporate liability under Section 16 and imposing penalties for offences under Section 15 of the EPA for non-compliance with the provisions of the EPA or the rules or any order or direction issued thereunder.

There have been no recent enforcement actions or case laws on 'greenwashing' in the Indian financial market.

Amendments to the Companies Act, 2013, recommended by the Standing Committee on Finance (2024-25)

The Standing Committee on Finance in its tenth report (2024–25), emphasised the need to strengthen India's ESG regulatory framework. To address existing challenges and enhance the impact of ESG regulations, the committee recommended amending the Companies Act, 2013 to incorporate ESG objectives as part of directors’ fiduciary responsibilities. Additionally, the report proposed the establishment of Independent ESG Committees within company boards, similar to audit committees, to ensure the effective implementation and monitoring of ESG strategies. To further institutionalise ESG considerations, the committee suggested that the Ministry dedicate a specific ESG chapter in its Annual Report, beginning FY 2025–26, as this component is currently missing.

Government of India considering development of a taxonomy for climate finance A climate finance taxonomy is a system that classifies which parts of the economy may be marketed as sustainable investments. It helps guide investors and banks in directing trillions towards impactful investments to tackle climate change.

It was stated in the Union Budget 2024-25 that the government is planning the development of a taxonomy for climate finance to facilitate capital availability for climate adaptation and mitigation, supporting India's green transition and climate commitments. This was reiterated in the stakeholder consultation workshop on “Financing India’s Green Transition Plan and Adaptation Needs” organised by the Union Ministry of Environment, Forest and Climate Change. As per the latest statement given by Economic Affairs Secretary, work with respect to developing a taxonomy for climate finance in India is going on and it would be ready in the next 6 (six) months.

Over the last few years, ESG factors have come to exert significant influence on M&A dealmaking including deal values and decisions in India. It is now increasingly being recognised that there is a direct correlation between ESG factors and commercial risks and opportunities in transactions. This has acted as a catalyst for private equity funds and corporations to use ESG-driven factors as one of the tools for determining business viability of investment targets and possibility of future sustainable value creation.

Indian companies are beginning to understand both the increasing relevance and the inevitability of compliance with ESG principles. This is a permanent change and not merely an investor trend. Thus, the introduction of future-ready policies/ strategies which are ESG cognizant coupled with statutory reforms under corporate laws to address ESG concerns in India is much needed and will help companies build sustainable businesses, attract investors, and ensure long term sustainable investments. In this regard, a notable legislative development on the legal front considering ESG factors in relation to M&A in India is the introduction of issuance of ESG debt securities by listed entities, which has broadened of the scope of sustainable investments in India, transitioning to a more holistic approach to ESG. Unlike the previous regimes of green debt securities, which primarily supported investments in projects supporting the environment, the new ESG debt securities framework covers a wider range of instruments such as green debt securities, social bonds, sustainability bonds, sustainability-linked bonds, or any other type of bonds, that are issued in accordance with such international frameworks as adapted or adjusted to suit Indian requirements. A key regulatory development to watch in this regard will be the revised framework by SEBI, expected to address disclosure obligations for listed entities issuing ESG debt securities.