Legal Underpinnings Drive ESG Amidst Global Flux

Abstract

The paper studies the complex global dynamics governing Environmental, Social, and Governance (ESG), including the evolving scope and structures of ESG frameworks. The impact of the significant expansion in the scope and spread of legal underpinnings over the last decade studied along with the increase in strategic applications of ESG like risk management. There is specific focus on developments the European Union, and an assessment of the impact of the changing ESG and regulatory scenario on India. The accelerated alignment of reporting standards, post the release of Task Force on Climate-Related Financial Disclosures (TCFD) guidelines has been complemented by legal and regulatory progress globally. The gradual development of legal underpinnings has put ESG or business sustainability on a stronger footing, by providing binding mandates to transition towards sustainability, albeit in varying in strength and forms across jurisdictions. The paper studies the development of these legal underpinnings and analyses how it has been critical in ensuring progress on the ESG front. These were critical in ensuring progress continued despite significant headwinds emerging of the Ukraine War and COVID-19, albeit in a slower but sustained manner. This contrasted with the scenario over the last four decades wherein vested interests could easily derail progress on climate change fronts in the absence of the legal underpinnings and binding mandates. This analysis is based on study of recent sustainability mechanisms, including a study of the architecture of the Paris Agreement, the TCFD guidelines, the compliance-based European Union (EU) Sustainability Action Plan in EU, and other international regulatory developments, including India’s BRSR and the recent regulatory proposals by RBI and SEBI etc. Global financial investors’ strong push for ESG based risk-assessment and investments is analysed along with the introduction of mandated ESG compliances for businesses and trade is pushing companies and countries with older ESG standards to respond, which has important implication for India and Indian businesses.