New Delhi: A parliamentary panel has recommended that the corporate affairs ministry establish an ESG oversight body to actively address greenwashing and implement penalties for fraudulent ESG claims.
Greenwashing generally refers to misleading claims by companies regarding the environmental benefits of a product or service.
The principles of ESG (Environmental, Social, and Governance) are integrated into the Companies Act of 2013.
In its report presented to Parliament on Monday, the Standing Committee on Finance noted the ministry’s reluctance to create a dedicated ESG oversight body, arguing that the current disclosure-based system—supported by company board accountability and existing penalties—sufficiently monitors ESG claims.
In response, the panel urged the ministry to establish a dedicated ESG oversight body equipped with specialized forensic expertise, and to develop sector-specific guidelines that support Micro, Small, and Medium Enterprises (MSMEs).
Moreover, it emphasized the need for prompt and effective enforcement of penalties for fraudulent ESG claims, as stated in the action-taken report.
“The Committee believes that while Section 166(2) offers a broad foundation, a clear legislative mandate will elevate ESG considerations to a critical strategic necessity for Boards, providing a robust legal basis for accountability in incorporating sustainability into business strategies,” it noted.
The committee cited the need for amendments to the Companies Act of 2013 to explicitly incorporate ESG objectives as core components of Directors’ fiduciary duties.
These recommendations form part of the panel’s government’s actions based on the observations in the 10th report of the Standing Committee on Finance regarding ‘Demands for Grants (2025-26) of the Ministry of Corporate Affairs’.
Additionally, the committee has urged the ministry to create a proactive approach to combat financial crimes from the outset, as well as enhance the investigatory and prosecutorial capacities of the Serious Fraud Investigation Office (SFIO).
It has also called for expedited hiring at the National Financial Reporting Authority (NFRA) and the establishment of a more transparent and results-driven CSR oversight system.
Under the Companies Act of 2013, some profitable companies are mandated to allocate at least 2% of their annual average net profit over the last three years to Corporate Social Responsibility (CSR) initiatives.
The ministry is responsible for executing this Act.
