[Commentary] The two faces of environmental regulation

In November this year, the official Twitter handle of the Prime Minister’s Office tweeted, “India believes in following the path of growth with equal focus on ESG”. ESG – Environmental, Social and Governance – refers to the three metrics of assessing the sustainability and social impact of an investment.

The sudden surge in popularity of ESG investing is a global phenomenon. It comes on the back of a steadily increasing expectation from the private sector to be proactive in climate action and transparent in how their investing choices impact the environment. It has taken multiple forms – from civil society activism like the Global Climate Strike to ‘Shareholder Activism’. These are not isolated, prompting global risk consultancies to include activism as one of the top 5 risks to companies in 2020.

Is India joining the wave?

In 2019, the Ministry of Corporate Affairs (MCA) released the National Guidelines on Responsible Business Conduct (NGRBC), an update from the 2011 National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs). The MCA also formed the Committee on Business Responsibility Reporting to develop formats for non-financial reporting.

In 2012, the Securities and Exchange Board of India (SEBI) had introduced requirements for  Business Responsibility Reporting. Now, following the recommendations of the MCA instituted committee, this has been modified to a new reporting framework – the Business Responsibility and Sustainability Report (BRSR) – applicable for the top 1000 listed entities by market capitalisation. The reporting, while currently voluntary, is planned to be mandatory from the next financial year.

The consultation paper on the BRSR format, currently open for public consultation, notes that the disclosures from “an ESG perspective” are “intended   to   enable   businesses   to   engage   more meaningfully  with  their  stakeholders,  and  encourage  them  to  go  beyond  regulatory financial compliance and report on their social and environmental impacts.”

A contradiction unfolding in real time

It is noteworthy that this emphasis on ESG comes at a time when India has been witnessing protests against the Draft Environmental Impact Assessment (EIA) 2020.

The Draft EIA 2020 has been widely criticised for two key changes it seeks to implement – provisions for post-facto clearances and a decrease in public consultation time. The draft EIA 2020 also limits who can file a complaint against environmental violations and this is restricted to those implementing the project, the government, and regulatory agencies, once again restricting public’s agency. The periodicity of filing a compliance report has been reduced from every 6 months to a year, thus compromising robustness of seasonal data. In addition to these, a series of projects, such as inland waterways and widening of highways, have been exempted from prior clearances.

Indeed, the effects are beginning to become visible. In 2020, in the prevailing lockdown, multiple protected areas and ecologically sensitive areas were unlocked for coal and linear infrastructure projects. These include the Dehing Patkai Elephant Reserve in Assam, Rajaji National Park in Uttarakhand, Bhagwan Mahavir Wildlife Sanctuary and Mollem National Park in Goa. In November 2020, the MoEFCC in a bid to ramp up coal production, removed the need for an amendment in the Environment Clearance (EC) for changing the source of coal from imported to domestic. The Expert Appraisal Committees (EAC) for granting Environmental Clearances (ECs) have also been instructed to meet twice a month to fast track clearances.

This contradictory nature of environmental regulation raises the question if reporting frameworks like BRSR and commitments to ESG investing are sufficient in the face of diminishing benchmarks set by the State. If the space for environmental regulation is ceded by the State to the private sector, it follows that the average citizen cannot hold them directly accountable the way they can their elected representatives.

Deciphering ESG

It is also helpful to look at ESG investing with a finer lens to see its impact. Although under the spotlight now, ESG investing is not new. The first mention of the term ‘ESG’ was in the United Nations Global Compact report, Who Cares Wins, years ago in 2004. Soon after, in 2006, the Principles for Responsible Investment were launched under the leadership of the then United Nations Secretary-General Kofi Annan. Since then, the idea of “responsible investing” has adopted multiple terminologies over the decade – Sustainable Investing, Socially Responsible Investment (SRI) and of course, ESG investing.

The past two decades has also seen the development of non-financial reporting and disclosure mechanisms. Prominent among these is the Carbon Disclosure Project (since 2000), the Global Reporting Initiative (since 1999), and the Taskforce on Climate-related Financial Disclosures (established in 2015).

A key thread across all of these is that they are voluntary disclosures. In September 2020, it was reported that New Zealand will be the first country to make climate risks disclosures for the financial sector mandatory. The Investment Association, a group of investors in the UK, are demanding that regulators make environmental disclosures mandatory citing concerns that listed companies are not transparent about climate risks.

A 2020 report, Bankrolling Extinction, found that in 2019, the world’s largest banks invested more than USD 2.6 trillion in sectors that are “the primary drivers of biodiversity destruction”. The reprt was released by Portfolio Earth, a collective that takes on the finance industry for its role in damaging the environment. Given that concepts like responsible investing have existed for close to two decades, findings like these raise questions as to their effectiveness and success. The State Bank of India, an Indian State-owned bank, is also under the spotlight now with protests from Goa to Sydney demanding that the bank drop plans to loan USD one billion for the controversial Carmichael coal mine.

As governments around the world begin to dismantle environment protection laws in a bid to restart economies hit by the pandemic, conservationists, naturalists, activists, and the common man are reduced to observers with fear and uncertainty over the future of protected areas. In July 2020, the UN Special Rapporteur on Extreme Poverty and Human Rights released The parlous state of poverty eradication report. One of the observations is that the “ever-greater reliance” on the private sector to defeat poverty is a “blind alley”. It notes that this “represents an abdication of responsibility by governments and international organizations”. With the dilution of regulatory acts and the emphasis on businesses to be responsible, it appears that environmental conservation and climate action are headed down the same blind alley.

Anjana Vencatesan is a researcher with the Care Earth Trust, Chennai, working on environmental risks and resilience.