A Comprehensive Guide to ESG Compliance

Sustainability is a term that has become more and more prevalent over the years.. Today, as investors and consumers increasingly prioritise these factors, ESG compliance has become a crucial aspect of business operations and strategy. Whether it’s the business practices, corporate policies, brand story, or work culture, ESG compliance has seen a significant rise in its presence within businesses

Wondering if your venture is ESG-compliant and follows through on sustainability standards? Let’s find out.

ESG compliance implements the guidelines mandated by regulatory and governmental bodies on internal policies and business practices. Hence, many companies seek ESG services to gain credibility on multiple levels. The three pillars of ESG compliance are:

1. Environmental

   This pillar focuses on a company’s impact on the natural world. It includes:

   • Setting carbon reduction or netzero targets as recommended by global initiatives like the Science based target initiative.
   • Reporting performance metrics like waste generation, water usage, carbon emissions, etc., to the concerned regulatory bodies.
   • Adopting energy-efficiency measures into overall operations, working towards transitioning to renewable energy sources where possible.
   • Protecting biodiversity and conserving ecosystem in areas affected by the company’s operations.

2. Social

   This pillar addresses how a company manages relationships with its employees, suppliers, customers and communities. It includes;

   • Enforcing policies for diversity and inclusion amongst the workforce across every level.
   • Enforcing fair and ethical labour practices, adhering to international labour conventions, as well as human rights protections across all operations and supply chains.
   • Engagement across various levels of community outreach for supporting social development
   • Implementing occupational health and safety standards to protect employee well-being.
   • Facilitating training and development programs for employees to enhance skills and support career growth.

3. Governance

   This pillar involves a company’s leadership, executive compensation, audits, internal controls and shareholder rights. It includes:

   • Creating and enforcing a robust code of conduct and ethics, along with stringent anti-corruption and anti-bribery policies
   • Implementing transparent business policies and practices for continued stakeholder participation and trust
   • Carrying out regular audits to detect any governance vulnerabilities or violations of the ESG policies.

While certain standards and practices will differ from region to region, there are widely accepted global frameworks that present a broad and general set of guidelines. These include:

• The Global Reporting Initiative (GRI) Standards
• The Sustainability Accounting Standards Board (SASB)
• The United Nations Principles for Responsible Investment (UNPRI)
• The Task Force on Climate-Related Financial Disclosures (TCFD)
• Carbon Disclosure Project (CDP)

While ESG is typically divided into three distinct pillars Environmental, Social, and Governance, the reality is more interconnected. A company’s environmental practices can shape its social reputation, and governance failures may reveal deeper environmental or social issues. Despite these overlaps, each ESG component carries its own set of core indicators that help assess performance and impact.

Environmental elements would comprise emissions, energy efficiency, and waste management. About social factors, they include workforce safety, inclusion, community involvement, and even supply chain labour practices.

The challenge lies in deciding how they apply to your business. But every sector has its own material risks. Hence, they need to be identified early and be willing to respond in a measurable way.

ESG compliance in India became prominent with the Companies Act, 2013. Corporate Social Responsibility (CSR) became obligatory for companies meeting specific financial thresholds. While CSR relates mainly to the social aspect of ESG, it marked an important step in India’s move toward formalised responsibility.

But CSR was only the first layer. SEBI introduced the Business Responsibility and Sustainability Reporting (BRSR) framework in 2021. Its adoption was mandated from FY 2022–23 for the top 1000 listed companies by market capitalisation. This marked a deeper shift, requiring detailed ESG disclosures. This covers everything from greenhouse gas emissions to workplace diversity and grievance redressal.

BRSR Core, introduced in July 2023, narrowed the focus to nine high-priority metrics. Hence, companies had to move towards more verifiable standardised data. Simultaneously, long-standing acts like the Environment Protection Act, 1986, continue to charge fines for not following environmental safeguards.

For Indian firms, ESG compliance is not only about regulation. Capital markets are reacting, sometimes quietly, sometimes decisively. Institutional investors, particularly those with global reach, have begun to filter portfolios for ESG risks. Companies with inconsistent reporting or weak governance scores often find themselves excluded without formal notice.

Meanwhile, global supply chains are changing. Buyers in export-driven sectors like textiles, automotive, and IT services are now embedding ESG clauses into contracts. A vendor that fails to meet disclosure norms could be dropped without much discussion. Even Indian banks are beginning to explore ESG-linked lending. However, the idea’s adoption is still at a nascent stage.

If a firm can’t express its ESG stance, it leaves others to define it, often unfavourably. On the other hand, businesses that engage with ESG early tend to uncover issues before they become liabilities. In that sense, compliance becomes less about external pressure and more about internal clarity.

1. Healthier Financial Performance

A recent study by McKinsey suggests that businesses that are ESG-compliant often show better stock performance with lower capital costs. ESG reporting, along with well-planned initiatives, has proven to be an effective tool in countering the rising expenses for operational costs, which directly impact over 60% of operational profits. This helps businesses optimise their cost-saving measures healthily and reap the rewards in a sustainable manner.

2. Reputational and Competitive Advantage

Since the last decade, organisations have suffered reputational damages by working or collaborating with unsustainable third parties, and that is now seen as a risk. Businesses now publicise and market their ESG-compliant initiatives and partners to improve or maintain their reputation. This improved public image can lead to increased customer loyalty, better stakeholder relationships and an edge over competitors that aren’t committed to being sustainable. As consumers become more environmentally and socially conscious, a company's ESG efforts can prove to be a key differentiator in the long run.

3. Optimised Risk Management

Keeping up with market shifts,environmental hazards and regulatory changes are all tasks that can be significantly assisted by focusing on ESG compliance. This helps companies in fending off any potential risks that can impact their reputatio, business operations or supply chain. For instance, reporting on carbon emissions regularly can help a company better navigate CDP guidelines. Being ESG-compliant helps companies in being less likely to face reputational or operational risks.

4. Avoiding Regulatory Penalties

Environmental regulations often undergo periodic updates. Moreover, governments worldwide often impose newer and stricter regulations related to social and environmental practices. ESG compliance significantly assists companies in navigating these regulatory changes, thus avoiding any potential penalties.

5. Inspiring Creative & Innovative Initiatives

Being ESG-compliant pushes companies to think creatively and drive innovation to discover newer and more efficient ways to improve resource management, reduce waste, reduce emissions, and create sustainable products. Theseinnovations and can lead to many cost-saving and resource-efficient business practices, as well as help the businesses stay ahead of regulatory changes and industry trends.

To know how to become ESG compliant, you need a guide. It will serve as a path to understand where companies stand across each ESG dimension. From there, they need to set realistic priorities. Not every metric applies to every firm, and trying to address all at once usually leads to diluted focus.

Policy creation comes next, followed by internal alignment. Data tracking, often the weakest link, must be embedded into everyday operations. Disclosures should follow, based on what’s measurable and defensible. And none of this is one-and-done. ESG compliance improves by iteration, not declaration.

1. Assessing the Current Policies and Practices

   Conducting a comprehensive assessment of current internal policies and business practices will help companies discover all the ways they have yet to experience being ESG compliant. This assessment should cover operations, supply chain, products and services. It is essential in creating a new and effective ESG compliance strategy that aligns with the company’s vision and incorporates ESG and sustainability standards.

2. Enforcing ESG Compliance

   Once the updated policies and practices have been implemented, the next step is integrating them into the company culture. Implement the new ESG principles that align with the company’s goals in all aspects of operations and management, including supply chain, employee engagement, and corporate governance.

3. Regular Reporting

   To ensure proper ESG compliance, companies must build new mechanisms to monitor how well the newer policies and practices are being adapted on a company-wide scale. Detailed reports must be made regularly on how well the management and employees perform on the established ESG standards.

4. Periodic Optimisations

   The final step towards achieving ESG compliance is to optimise your ESG strategy and practices with time. It is an ever-evolving process with new regulations and guidelines that governments and regulatory bodies introduce. Seeking more optimised ways to improve sustainability, practices, and emissions.Responding to new sustainability challenges will always be something to work towards, which is why companies should be open to constant improvements and optimisations in their processes.

Several Indian companies, particularly outside the top listed groups and large corporates, struggle with ESG. It’s not because they’re resistant. But because the path is unclear. Frameworks are available, yes. But interpretation varies. Terms like “materiality” and “impact” often feel abstract until translated into operational specifics.

Another issue is resourcing. In many mid-sized firms, ESG is often managed by a single compliance lead or CSR head, without cross-functional ownership. Data lives in silos. Processes vary by plant, region, or vendor. As a result, reporting is patchy and sometimes internally disputed.

These gaps are fixable, but not instantly. Many firms are now building ESG through phased implementation. That might mean beginning with energy use or water reporting and adding governance audits later. Industry associations are also helping by publishing templates, holding peer forums, and offering access to external reviewers. The key isn’t perfection. It’s about building momentum.

Government Initiatives Supporting ESG Compliance

India’s regulatory bodies have introduced specific mandates that go beyond intent. SEBI’s BRSR and BRSR Core frameworks require ESG disclosures with increasing depth and clarity. The Ministry of Corporate Affairs monitors CSR obligations and reviews alignment with national priorities. These efforts are underpinned by the National Guidelines on Responsible Business Conduct (NGRBC). It serves as the foundation for BRSR.

Collaborative Efforts and Industry Standards

Outside government, several industry-led initiatives are helping companies bridge the ESG readiness gap. ESG rating agencies offer independent benchmarks that influence investor decisions. Business chambers are releasing guidance documents tailored by sector. Shared tools like GHG calculators, diversity audit formats, and vendor screening scorecards are lowering the barrier to meaningful compliance. This collective approach has made ESG feel more practical, even for firms that don’t have large sustainability teams.

Future of ESG Compliance in India

Regulatory expansion seems inevitable. Over time, BRSR requirements will likely extend beyond the top 1000 companies. SEBI has already announced that third-party assurance of ESG data, particularly BRSR Core metrics, will become mandatory in a phased manner starting FY 2023–24 for the top 150 listed entities. As Indian firms raise capital overseas or compete for global procurement, they’ll face ESG due diligence. Therefore, the future won’t wait for perfect alignment. It will reward those who start, even if imperfectly.

Businesses can benefit greatly from ESG insights and resultant compliance. With stakeholders already placing so much weight on companies being ESG-compliant, it is not just advantageous but crucial for achieving sustainability and building brand reputation. Prioritising sustainability, social responsibility, and environmental care can help your business build a strong and ethical foundation, paving the way for sustainable growth and a more equitable future.

Avoiding ESG is a visible decision. And one that raises questions. Investors, customers, and even employees now look for signs that a business understands its wider role. Those who embrace ESG tend to make fewer reactive decisions and more deliberate trade-offs. They spot weak links before they break. More importantly, they build trust over time and across stakeholders. Compliance isn’t the full answer. But it’s often the right place to begin.