Environment, Social and Governance Norms: Assessing the Need for Shifting Focus from Corporate Governance to Sustainable Corporate Governance

Abstract

As an entity working towards balancing out diametrically different economic goals, a strong governance mechanism is of utmost importance in a Company. Over the years, there have been some impressive pieces of legislations aimed towards creating an objective, impartial and transparent governance structure for the corporations across global jurisdictions. However, as the looming challenges of climate change grows more significant with the passing days, the role and position of a Company is also witnessing an apparent shift. The growing clarion calls concerning the Corporations to undertake more responsibility in terms of becoming more sustainable in their operations, and hence, accordingly be held accountable for their actions which are not necessarily restricted to the confines of the Board or the Shareholder meetings any longer. In such a scenario, the previously understood notions of governance have been laid bare for critical scrutiny, especially in terms of their loopholes and shortcomings against the new age challenges. The augmented focus on ‘Sustainability’ has forced the Companies and the policy makers to revisit their notions of governance, thus, contributing heavily towards advocating of ‘Environment, Social and Governance’ norms as the ‘new golden standard of governance’ norms for Corporations across jurisdictions. The theoretical assessment of the above proposition although has enough merit to warrant a closer scrutiny. However, the same is not without flaws. While the increased possibility tedious paperwork often linked to the filing requirements under the ESG norms does sufficiently enough to paint a rather unglamorous picture on one hand, the additional concerns relating lack of standardisation of norms, awareness, personal and moral bias in terms of interpreting ESG ratings on the other hand, pose a direct threat to the veracity of the whole concept. In light of the aforementioned context, the present piece is an attempt by the authors, to undertake a critical theoretical assessment of ESG as a concept and in furtherance, attempt to understand its feasibility within the general framework of operations of the Indian companies. In doing so, the authors first attempt to construing a workable definition of the phrase ‘Sustainable Business’. Thereafter, they shall carry out a comparative assessment of ESG norms prevalent in EU and India, before, delving into primary practical roadblocks that could possibly hinder the implementation of the norms in a Company.