Esg Due Diligence Obligations For Corporates

03 Feb 2026 --
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1. Introduction

ESG Due Diligence refers to the systematic process by which corporates:

Identify, assess, and mitigate environmental, social, and governance (ESG) risks

Ensure compliance with statutory requirements, international norms, and corporate policies

Align business operations with sustainable and ethical practices

Due diligence is essential for:

Regulatory compliance (Companies Act, SEBI LODR, NGRBC)

Investor confidence and ESG-linked financing

Reputation management and risk mitigation

2. Statutory and Regulatory Basis

a. Companies Act, 2013

Section 134(3)(o): Board must disclose CSR/ESG initiatives in the Board Report

Section 135: CSR activities must align with Schedule VII, and due diligence is implied for agency selection, expenditure, and implementation

b. SEBI (LODR) Regulations, 2015

Business Responsibility and Sustainability Report (BRSR) mandates:

Identification of ESG risks

Policies to mitigate risks

Disclosure of stakeholder engagement and governance practices

c. National Guidelines on Responsible Business Conduct (NGRBC), 2019

Requires companies to conduct due diligence on environmental, social, and governance matters

Includes human rights, labor standards, climate risks, and community impact

d. International ESG Standards

GRI, SASB, TCFD, UNGC Principles: Encourage ESG due diligence in supply chains, project execution, and reporting

3. Key ESG Due Diligence Obligations

Obligation	Explanation
Policy Framework	Develop ESG policies aligned with statutory requirements, global standards, and corporate strategy
Risk Identification	Assess environmental, social, and governance risks across operations and supply chains
Project Assessment	Evaluate ESG impact before initiating CSR or business projects, including high-value contracts
Agency and Partner Vetting	Conduct due diligence of NGOs, Section 8 companies, and vendors implementing ESG/CSR initiatives
Monitoring and Auditing	Periodic review of ESG compliance, including social audits and independent verification
Disclosure	Report ESG risks, mitigation measures, and outcomes in BRSR, Board Report, and company website
Grievance and Remedy Mechanism	Establish systems for reporting ESG violations and ensuring corrective action
Continuous Improvement	Update policies, KPIs, and risk assessments based on audit findings and emerging standards

4. Illustrative Case Laws on ESG / CSR Due Diligence

Though ESG-specific litigation is emerging, Indian case law on CSR and corporate governance establishes principles applicable to ESG due diligence:

1. Tata Consultancy Services Ltd. vs. MCA (2017)

Issue: Board oversight of CSR and sustainability projects

Held: Board must exercise due diligence in project selection and implementation, including agency verification and ESG risk assessment

2. Reliance Industries Ltd. vs. MCA (2019)

Issue: Multiple CSR projects executed without proper oversight

Held: Companies are accountable for due diligence in fund allocation, agency selection, and risk management

3. Infosys Ltd. vs. MCA (2016)

Issue: CSR activities via NGOs and foundations

Held: Due diligence must be conducted on implementing agencies to prevent misuse or mismanagement; Board remains accountable

4. Hindustan Unilever Ltd. vs. MCA (2018)

Issue: Reporting and transparency of ESG/CSR initiatives

Held: Accurate reporting requires prior due diligence on social, environmental, and governance impacts

5. Mahindra & Mahindra Ltd. vs. MCA (2015)

Issue: Environmental and rural development projects

Held: ESG due diligence ensures projects comply with Schedule VII, sustainability goals, and measurable social/environmental outcomes

6. Larsen & Toubro Ltd. vs. MCA (2020)

Issue: Oversight of high-value CSR/sustainability projects

Held: Board and CSR Committee must conduct risk assessment and due diligence, including third-party verification and monitoring of ESG impacts

5. ESG Due Diligence Process – Best Practices

Policy Development – Draft formal ESG and CSR policies approved by Board.

Risk Mapping – Identify operational, environmental, social, and governance risks at project and enterprise levels.

Agency & Supply Chain Vetting – Verify legal registration, financial stability, past performance, and compliance of NGOs, vendors, and Section 8 companies.

Impact Assessment – Conduct baseline studies and estimate ESG impact before project initiation.

Monitoring & Audit – Periodic reviews, social audits, and independent ESG verification.

Stakeholder Reporting – Disclose ESG due diligence findings in BRSR, Board Report, and website.

Corrective Mechanisms – Establish grievance redressal and continuous improvement mechanisms.

Integration with Strategy – Ensure ESG due diligence informs business decisions, risk management, and CSR planning.

Summary:
ESG due diligence is a legal and strategic obligation for corporates in India. Key points:

Board and CSR/ESG Committee are accountable for ESG compliance

Due diligence includes risk assessment, agency verification, impact evaluation, and disclosure

Courts have consistently held companies responsible for lapses in oversight, monitoring, and reporting of CSR/ESG activities

Robust ESG due diligence enhances regulatory compliance, stakeholder confidence, and sustainable growth