Amend Companies Act to bolster ESG initiatives, set up oversight body: House panel tells MCA
Aug 4, 2025
Synopsis
A parliamentary panel urges amending the Companies Act to integrate ESG objectives into directors' duties and establish an ESG oversight body to combat greenwashing. The committee also calls for improved efficiency at the SFIO, swift filling of vacancies at the NFRA, and a transparent oversight system for CSR, emphasizing the need for empirical data on project outcomes and enforcement actions.
A House panel has underscored the need to amend the Companies Act, 2013, to explicitly enshrine environmental, social and governance (ESG) objectives as integral components of directors' fiduciary duties.
The Parliamentary standing committee on finance, in a report submitted with the Lok Sabha on Monday, also urged the corporate affairs ministry to set up a dedicated ESG oversight body to combat greenwashing through specialized forensic expertise.
Such a body should also formulate sector-specific guidelines, extend support to Micro, Small, and Medium Enterprises (MSMEs), and to ensure expeditious and deterrent application of penal provisions against fraudulent ESG claims, the panel under senior BJP leader Bhartruhari Mahtab said.
“The Committee are of the view that while Section 166(2) (of the Companies Act) provides a broad stroke, a direct and unambiguous legislative mandate will elevate ESG considerations to a non-negotiable strategic imperative for (company) boards, providing a clear legal bedrock for accountability in integrating sustainability into core business strategies, thereby transitioning from mere disclosure to fundamental corporate responsibility,” the panel said in the report.
SFIO, NFRA performance
The panel has asked the ministry to firm up a multi-pronged strategy to stamp out financial crimes at their genesis while improving the Serious Fraud Investigation Office's (SFIO's) efficiency.
The panel called on the ministry to submit a comprehensive, evidence-based report detailing the impact of SFIO's referrals to other agencies and a judicial analysis of prosecutions.
The committee called for swift filling of vacancies at the National Financial Reporting Authority
As for the National Financial Reporting Authority, the panel flagged that only 32 out of 69 posts were filled in FY25, pushing for drawing up a road map to establish a dedicated, permanent cadre of skilled professionals for the audit regulator.
It has stressed the need to significantly accelerate the recruitment process to fill all vacant positions within a defined time-frame.
The road map to fill in the NFRA vacancies, the panel said, should also address current recruitment bottlenecks by potentially reviewing and revising recruitment rules for higher echelons, where appropriate, to reduce the over-reliance on deputation.
CSR oversight system
The committee has urged the ministry to build a transparent and results-oriented oversight system for corporate social responsibility. Companies would then be required to submit, and the ministry to publish, analytical reports detailing the actual socio-economic impact of CSR projects, and not just the amount of such expenditure.
It wants the ministry to create a public system to transparently track all unspent CSR funds and provide exhaustive data on all enforcement actions, including the type of non-compliance, penalties collected, and their effectiveness.
The panel flagged that the ministry’s assertion that the extant CSR framework provides accurate mechanism of reporting, monitoring, penalty for noncompliance and proper utilization “remains an unquantified claim, devoid of empirical substantiation, or performance metrics on project outcomes, utilization of all unspent funds, or specific, impactful enforcement actions”.
[The Economic Times]
