A Parliamentary panel has urged the Ministry of Corporate Affairs (MCA) to establish a dedicated oversight body for Environmental, Social, and Governance (ESG) issues, citing concerns over "greenwashing" – companies' potentially misleading claims about climate-friendly impacts.
While ESG principles are already incorporated into the Companies Act, 2013, the Standing Committee on Finance, in its recent report to the Parliament, has noted the MCA's reluctance to form a new body, saying the current system of board accountability and penal provisions within the disclosure-based regime is sufficient for monitoring ESG compliance.
However, the panel argued that the existing framework, particularly Section 166(2), is too general and advocates for a stronger, more explicit legislative mandate. They said a dedicated body with specialised forensic expertise is crucial for actively combating greenwashing, developing sector-specific guidelines, and providing targeted support to Micro, Small, and Medium Enterprises (MSMEs).
Also Read: New exports and high sales spell growth for services sector
The panel also recommended swift and robust application of penal provisions against fraudulent ESG claims and calls for statutory amendments to the Companies Act, 2013, to solidify ESG objectives as integral components of Directors' fiduciary duties.
This move aims to shift ESG considerations from mere disclosures to fundamental corporate responsibilities, ensuring accountability in integrating sustainability into core business strategies. These recommendations were part of the panel's review of the government's actions on observations from its 10th report on the MCA's 'Demands for Grants (2025-26).
Besides, it should be ensured that there is “expeditious and deterrent application of penal provisions against fraudulent ESG claims,” the action-taken report said.
Meanwhile, the committee has asked the ministry to develop a proactive and multi-pronged strategy to combat financial crimes 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.
Follow us
