As businesses expand their influence over society and the environment, the role of corporate accountability has come under deeper scrutiny. A Parliamentary Standing Committee has recently recommended a series of enhancements to India’s Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) laws. The suggestions are being seen as both a corrective measure to existing gaps and a forward-looking step to align India’s corporate governance standards with global practices.

The report, tabled during the monsoon session of Parliament, reflects concerns raised in recent years about uneven CSR spending patterns, lack of proper monitoring, and the superficial adoption of ESG principles. Members of Parliament unanimously agreed that while India was one of the first countries to legally mandate CSR spending by certain companies, the framework now demands an update to ensure effectiveness and greater social impact.

CSR Laws Under Review

CSR has been a legal requirement in India since the Companies Act, 2013 made it mandatory for firms of a particular size and profitability to spend at least two per cent of their average net profits on activities aimed at social welfare. The practice has directed significant funds towards education, health, rural development, and skill-building. However, audits and reviews over the last decade indicate that a large share of the spending has been concentrated in urban centres, leaving weaker regions behind.

The committee observed that in many cases, the CSR projects are treated more like compliance exercises rather than meaningful interventions. Additionally, some companies attempt to bypass the requirement by booking expenses that are not aligned with the intent of the law. It was therefore recommended that sectors in genuine need, such as aspirational districts, tribal areas, and climate adaptation projects, be given priority. Stronger audit mechanisms, independent oversight, and greater transparency in reporting were also suggested.

Another key proposal is the creation of a national CSR portal to facilitate real-time disclosures of project details, expenditure, and outcomes. Such a digital system could serve as both an accountability tool and a guide for corporates to avoid duplication of projects.

ESG Gains Global Relevance

While CSR deals broadly with the manner in which companies spend their mandated social funds, ESG is a more comprehensive framework that addresses a company’s operations in terms of sustainability, governance, and ethical practices. Globally, ESG considerations are now integrated into investment decisions, with large funds avoiding companies that fail to meet sustainability criteria.

The committee highlighted that in India, ESG is still at a nascent stage, largely voluntary, and not yet fully backed by strict legal enforcement. Many corporates adopt ESG labels in their annual reports and sustainability filings, but there is little clarity on standardised frameworks, measurement tools, and independent verification of claims. The panel has suggested that India should work towards a national ESG taxonomy aligned with international benchmarks, while taking into account the specific realities of Indian businesses and developmental needs.

Greater emphasis was also placed on climate disclosure, waste management, renewable energy usage, and employee welfare, which the committee believes should be mandatory for large companies. To attract global investors, the panel underlined, India must ensure that ESG reporting is credible, uniform, and comparable with international standards.

Path Toward Stronger Compliance

The proposed changes to CSR and ESG will, however, require careful balancing between regulation and ease of doing business. Some industry representatives fear that additional compliance layers could increase costs and discourage smaller firms from entering into social or environmental projects. Acknowledging this concern, the panel recommended a phased approach where large listed entities could be brought under stricter ESG mandates first, with room for smaller companies to gradually adapt.

It was also proposed that the Ministry of Corporate Affairs set up a central monitoring cell that would work in coordination with state governments to ensure that CSR and ESG projects are implemented effectively on the ground. The panel strongly felt that simply issuing guidelines without mechanisms for enforcement would fail to deliver the desired impact.

The discussion around board accountability also came up prominently, with MPs suggesting that independent directors on the boards of companies should play a more active role in ensuring truthful reporting of CSR and ESG commitments. Enhanced penal provisions may also be considered in cases of wilful misreporting or misuse of funds.

Looking Ahead

The Parliamentary committee’s recommendations are likely to fuel a debate among policymakers, industry leaders, and civil society groups. Supporters believe that tightening CSR and ESG norms will not only bring India closer to global standards but also ensure that corporate contributions towards society and the environment are more meaningful, transparent, and measurable. Critics, on the other hand, may argue that the Indian corporate sector is already burdened with multiple compliance layers.

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