Environmental Compliance for Companies in India: Key Legislation and ESG Guidelines

Environmental Compliance for Companies in India: Key Legislation and ESG Guidelines

April 12, 2024

The environmental compliance landscape in India poses challenges due to uneven law enforcement. Businesses in polluting industries or whose premises are located in sensitive ecosystems will face increased legal scrutiny. Finally, top-listed companies must file and undergo audits for sustainability and ESG compliance initiatives under BRSR and BRSR Core reporting obligations.

Legal environment

India’s environmental regulatory framework is underpinned by five key legislations: The Environment (Protection) Act, 1986; Forest (Conservation) Act, 1980; Wildlife (Protection) Act, 1972; the Water (Prevention and Control of Pollution) Act, 1974; and the Air (Prevention and Control of Pollution) Act, 1981. Other important laws are Public Liability Insurance Act, 1991; Biological Diversity Act, 2002; and the National Green Tribunal Act, 2010.

These laws collectively address a broad spectrum of environmental concerns in India, including pollution control, biodiversity protection, and sustainable resource management. Additionally, the National Green Tribunal (NGT), set up in 2010, facilitates more effective enforcement and adjudication of environmental matters.

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The Environment (Protection) Act, 1986 is India’s umbrella law, under which various rules and notifications have been released to allow the central government to take various measures to improve the environment and mitigate environmental pollution. These include the E-Waste (Management) Rules 2016, as amended in 2018 (E-Waste Rules); Batteries (Management & Handling) Rules 2001 (and the proposed draft Battery Waste Management Rules 2020); Bio-Medical Waste Management Rules 2016; Plastic Waste Management Rules – 2016 and Amendment Rules of 2021 and 2022; Solid Waste Management Rules 2016; Construction and Demolition Waste Management Rules 2016; Hazardous and Other Waste (Management and Transboundary Movement) Rules 2016, as amended in 2019 (HW Rules); Manufacture, Storage and Import of Hazardous Chemicals Rules 1989 (MSIHC Rules); Coastal Regulation Zone Notification 2019 (and related 2021 procedure for violation of the CRZ Notification); and Environment Impact Assessment (EIA) Notification 2006 (subsequent to which various EIA notifications and amendments have been issued).

The Plastic Waste Management Rules, 2016, form the statutory framework for India’s plastic ban, emphasizing environmentally sound management and disposal of plastic waste.

This was followed by the introduction of Guidelines on Extended Producer Responsibility (EPR) for plastic packaging in February 2022, which set ambitious targets for EPR, plastic packaging waste recycling, reuse of rigid plastic packaging, and the incorporation of recycled plastic content.

Meanwhile, the Plastic Waste Management Amendment Rules, 2021 was implemented starting July 1, 2022, which banned various single-use plastic items across India, with a particular focus on those with low utility and high littering potential.

The plastic ban restricts the manufacture, import, stocking, distribution, sale, and use of plastic carry bags with thickness less than 75 microns, further extended to 120 microns from December 31, 2022.

Stringent enforcement measures include the seizure of banned plastics and imposition of penalties. To monitor and enforce the ban effectively, the government has introduced online platforms, such as the National Dashboard, CPCB Monitoring Module, and the CPCB Grievance Redressal App.

This regulatory landscape presents significant investment opportunities for sustainable investors and companies specializing in eco-friendly alternatives to single-use plastics. The Central Pollution Control Board (CPCB) has certified 196 manufacturers/sellers of compostable plastics, showcasing a growing market for environmentally conscious products.

Moreover, the federal government’s support through central assistance to states/union territories under the Swachh Bharat Mission for solid waste management, including plastic waste management, in both urban and rural areas, provides an additional incentive for sustainable initiatives.

Regulatory environment

The Ministry of Environment, Forest and Climate Change (MoEFCC) plays a pivotal role as the federal agency responsible for the implementation and oversight of environmental laws in India.

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The Central Pollution Control Board (CPCB) serves as the central regulatory authority, wielding the power to formulate standards and enforce regulations related to industrial pollution, waste management, and emissions nationwide. Enforcement is also decentralized to State Pollution Control Boards (SPCBs) or pollution control committees in union territories. This intends to promote localized governance, but has led to challenges, including inconsistent application of rules, transparency issues, weak regulatory compliance, and sporadic instances of corruption.

Collaborating with SPCBs and the Union Territory Pollution Control Committees (UTPCCs), the CPCB can issue directives, curtail operations, and impose penalties on non-compliant industries. SPCBs and UTPCCs, operating at the state level, are tasked with granting environmental consent to industries within their jurisdictions and ensuring ongoing compliance through regular monitoring and enforcement actions.

Further, the NGT has mandated the strict enforcement of the Comprehensive Environmental Pollution Index (CEPI) by India’s environmental regulatory authorities. CEPI assigns scores to various pollutants, ambient pollutant concentrations, receptors (i.e., the number of affected people), and additional high-risk factors.

Under the CEPI classification, industrial clusters are now designated as Polluted Industrial Areas (PIAs), each falling into one of the following categories:

Critically Polluted Area (CPA)

Severely Polluted Area (SPA)

Other Polluted Areas (OPAs)

The CPCB and SPCBs are tasked with monitoring these CEPI- designated areas, pursuing compensation from polluting industries. Any plans for expansion or the development of new sites in these areas will be rejected by the authorities.

Environmental permits

India operates an integrated permit system, with a combined application process for a Consent to Establish (CTE) and subsequent Consent to Operate (CTO) under the Water Act and Air Act.

The Extended Producer Responsibility – Authorization for Producers, introduced by the E-Waste (Management) Rules 2016 simplifies the process by centralizing applications with the CPCB.

Additionally, the CPCB has waived separate CTEs for industrial units requiring environmental clearance (EC), considering the EC as being equivalent to a CTE.

Companies may need multiple permits based on their activities. The Ministry of Environment, Forests and Climate Change categorizes industries into red, orange, green, or white, each assigned a pollution index score. The permit/consent process involves obtaining key environmental permits from the SPCB.

pollution index of industrial sectors in India

Central-level permits are required in specific cases from entities such as the CPCB, Ministry of Environment, Forest and Climate Change, Central Ground Water Board, and Petroleum and Explosives Safety Organisation.

The duration of consent varies based on industry categories. Initial CTEs are typically valid for one year, while CTOs under the Water and Air Acts range from three to five years. Renewals are granted before 60 to 120 days of expiry, with some states adopting auto-renewal for certain criteria. White category industries, considered non-polluting, may not need a CTO, while green category industries can obtain a 15-year initial CTO.

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Consent orders and environmental clearances are transferable through a straightforward procedure involving a no-objection from the transferor and an application from the transferee, accompanied by necessary supporting documents.

Various penalties apply for non-compliance. Failure to obtain CTO or CTE may result in imprisonment and fines. The CPCB has a formula for environmental compensation based on severity, duration, scale, and location of violation. Courts, including the NGT, can impose penalties, with the NGT having jurisdiction over civil cases related to environmental laws. Penalties under the NGT Act are higher, and non-compliance may lead to imprisonment or fines for individuals and companies. The NGT can order relief, compensation, and restitution for environmental damage. Recent cases indicate a focus on fixing the environmental compensation regime.

Environmental impact assessment

Environmental Impact Assessments are prerequisites for various activities, with some necessitating a comprehensive EIA, often involving public consultations.

The activities requiring such assessments include:

Mining of minerals

Offshore and onshore oil and gas exploration, development, and production

Oil and gas transportation pipelines

Thermal power plants

Nuclear power projects and processing of nuclear fuel

Metallurgical industries (ferrous and non-ferrous)

Asbestos milling and asbestos-based products

Chlor-alkali industry

Chemical fertilizers

Pulp and paper industry

Sugar industry

Building and construction projects

Townships and area development projects (exempted from the public consultation phase)

Permits and regulatory processes are outlined in the EIA Notification 2006, categorizing activities into A and B based on potential impacts. For new projects and the expansion/modernization of existing ones:

Category A activities require clearance from the Central Ministry of Environment, Forests, and Climate Change.

Category B activities require clearance from a state-level EIA Authority.

Category B is further divided into B1 projects requiring an EIA and B2 projects not requiring either an EIA or public consultation. The clearance process involves four stages: screening (for Category B), scoping, public consultation, and appraisal.

Public hearings are exempt for certain projects, including modernization of irrigation projects, small-scale industrial undertakings in notified/designated industrial areas, units in special economic zones (SEZ) and export processing zones (EPZ), highway road expansion not requiring additional land acquisition, etc.

The Expert Appraisal Committee (EAC) or State Level Expert Appraisal Committee (SEAC) must complete their assessment within 60 days, and the regulatory authority notifies its decision within 105 days of receiving recommendations.

Environmental clearance validity varies:

Ten years for river valley projects.

Project life estimated by the EAC or SEAC, up to 30 years for mining projects.

Five years for other projects and activities.

Project management must submit half-yearly compliance reports. Transfer of environmental clearance is possible within the validity period, subject to conditions, without needing EAC or SEAC reference.

Penalties for EIA Notification 2006 violations fall under the EP Act, with the Supreme Court sometimes imposing environmental compensation at 10 percent of the project cost. Some cases resulted in demolition orders for illegal constructions.

While a draft EIA Notification 2020 lapsed due to delays and extensive objections, there is government pressure to streamline and expedite the compliance process, potentially conflicting with sustainability and environmental protection objectives. The environment ministry has introduced a single-window online portal called PARIVESH for the streamlined issuance of environment, forest, and wildlife clearances.

In a memorandum issued on January 17, 2022, the ministry announced plans to implement a star rating system, assessing the efficiency and timeliness of states in the clearance-granting process.

The star rating system assigns states scores between one and seven (or more). States gain two points for completing a project in less than 80 days and one point for clearing in less than 105 days. If the clearance takes longer than seven days, the score is zero. This is converted to a star-based rating system for the state environment impact assessment authority (SEIAA), where a score of:

7 marks and more gets 5 stars

6-7 marks get 4 stars

5-6 marks get 3 stars

4-5 marks get 2 stars

3-4 marks get 1 star

Less than 3 marks get no stars

The rating of an SEIAA will be a dynamic process, based on their performance during blocks of six months and assessing data captured from day-1 to the last day of that six-month period.

Non-compliance and judicial proceedings

Environmental compliance for companies in India involves adherence to a multitude of standards related to pollution control, waste management, and emission standards. Regulatory authorities possess extensive powers to conduct inspections, issue show-cause notices, and, if necessary, impose closure orders. Non-compliant entities are given opportunities to rectify violations and demonstrate compliance before facing stringent enforcement actions.

Companies found in non-compliance with environmental laws in India may face civil and criminal liabilities. Civil liability is imposed in the form of environmental compensation by the CPCB, SPCB, or UTPCC. This compensation may be subject to further review by appellate bodies such as the NGT or the Appellate Authority, ensuring a thorough examination of the case based on relevant considerations. Simultaneously, criminal prosecution can be initiated against individuals responsible for the operations of non-compliant industries.

The compliance process involves a series of steps, including inspections triggered by public complaints or regulatory initiatives. If non-compliance is detected through inspections, sample analyses, or online monitoring, regulatory authorities issue show-cause notices to the occupier or operator of the project. The project operator can respond, and if the response is deemed unsatisfactory, closure orders may be issued. Importantly, closure orders are only implemented after providing ample opportunity for the concerned parties to demonstrate compliance. The response should include substantiated reasons supported by scientific evidence, such as sample analysis reports, to prove adherence to environmental conditions and standards.

Regulatory authorities also have the power to issue directives, mandate pollution control measures, and disconnect essential services such as electricity or water for non-compliant industries. The enforcement process is designed to ensure a balance between stringent actions and opportunities for entities to rectify violations.

In cases of environmental law breaches, individuals have the option to file civil claims. Non-contractual claims can be submitted to relevant authorities or courts, seeking rectification of activities causing violations, compensation for environmental damages, and restoration of ecological harm. Furthermore, contractual claims can be initiated through the appropriate court or tribunal to seek indemnification for environmental liabilities, provided such provisions are outlined in the contractual agreement.

During defense, exceptions to the ‘strict liability’ tort principle may apply, such natural disasters, the claimant’s fault, the claimant’s voluntary assumption of risk, or damage caused by a third party. However, the Supreme Court of India, in the landmark case of MC Mehta v Union of India (1987) 1 SCC 395, established the principle of ‘absolute liability.’ According to this principle, individuals engaged in hazardous or inherently dangerous activities are held absolutely liable for damages resulting from accidents related to such activities, without any exceptions, unlike the principle of strict liability.

Appeals in Environmental Cases

Regulatory decisions can be contested through an appeal process in India. Occupiers or operators of the affected projects can challenge directives before the Appellate Authority or the National Green Tribunal (NGT), filing within 30 days. Subsequent appeals can be made to High Courts and the Supreme Court. Grounds for appeal include violations of natural justice, unwarranted actions despite compliance, or disproportionate sanctions.

In criminal cases, punishment is determined by relevant criminal courts not inferior to a Metropolitan Magistrate or Judicial Magistrate. Constitutional courts, such as High Courts and the Supreme Court, can adjudicate environmental law cases, providing remedies for parties affected by environmental violations. The appeal process ensures a thorough examination of each case’s facts and circumstances.

ESG reporting in India

In May 2021, the Securities and Exchange Board of India (SEBI) introduced the Business Responsibility and Sustainability Report (BRSR), replacing the earlier Business Responsibility Report (BRR). The BRSR mandates reporting on environmental, social, and corporate governance (ESG) aspects, requiring the top listed entities to disclose their performance against the nine principles of the National Guidelines on Responsible Business Conduct (NGBRCs). Reporting under each principle is categorized into essential and leadership indicators. While essential indicators are mandatory, reporting on leadership indicators is voluntary (though encouraged).

Starting FY 2023, SEBI mandates the top 1000 listed entities in India by market capitalization to incorporate BRSR filings in their Annual Reports. In July 2023, SEBI expanded ESG metrics for mandatory disclosure under ‘BRSR Core’ for specific listed companies in India. The BRSR Core, a subset of the comprehensive BRSR, encompasses key performance indicators (KPIs) across nine ESG attributes. Tailored to the Indian/emerging market context, additional KPIs focus on aspects like job creation in small towns, business openness, and gross wages paid to women. To enhance global comparability, intensity ratios based on revenue adjusted for purchasing power parity (PPP) are included.

For easy reference, the BRSR Core provides a cross-reference to disclosures in the BRSR.

BRSR Core disclosures

Compliance timeline for BRSR Core

In its circular issued July 12, 2023 (SEBI/HO/ CFD/CFD-SEC-2/P/CIR/2023/122), SEBI laid down the timeline for how the BRSR Core compliance will become mandatory for all listed companies in India. Starting FY 2023-24, SEBI mandates the top 150 listed companies in India by market capitalization to provide “reasonable assurance” on ESG metrics.

Multinational companies in India are advised to tread carefully in this regard as most regions at the forefront of ESG compliance, such as the European Union, only require limited assurance currently. By limited assurance, it is meant that auditors can be expected to rely on company management disclosures. However, under SEBI’s direction in India, the company’s auditors would need to check the organization’s ESG metrics and verify its disclosures against actual protocols, performance, and standards.

esg timeline india

Summary

Businesses aiming to achieve compliance with India’s environmental laws should start by thoroughly understanding and identifying the applicable regulations at national, regional, and local levels.

Conducting environmental impact assessments helps in identifying and addressing potential environmental risks associated with operations, especially if planned investments are in industries regarded as hazardous or polluting. Developing and communicating clear enviro