This article was written by Sahiti Somanchi, who a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution of course We are here.
This article was edited and published by Shashwat Kaushik.
introduction
With the increase in business entities, there has also been an increase in economic growth and development, increased employment and improved living conditions for a number of people. But this growth and development also have negative consequences, namely environmental destruction.
As is often the case, a coin has two sides.
On the one hand, companies have created countless jobs, stimulated the economy and raised people’s living standards.
However, on the other hand, it has led to companies adopting practices that harm the environment and contribute to global warming, climate change and the depletion of natural resources. This has also impacted people’s dependence on natural resources for their daily livelihood. And as companies grow in size and business activity, the consumption of natural resources also increases.
Influence of the company on consumer behavior
Companies have the power to change the shopping habits of their customers through their campaigns. Celebrities often leave an impression on their audiences and companies have the power and resources to work with them. People often listen to celebrities because they sometimes view them as role models. However, despite their potential to drive positive change and raise environmental awareness, many companies are reluctant to take responsibility for the environmental impacts they cause. They may prioritize short-term profits over long-term sustainability because they fear that adopting environmentally friendly practices could harm their financial performance. In addition, some companies may lack the necessary knowledge and expertise to effectively address environmental issues.
To overcome this reluctance, governments can play a crucial role by implementing regulations and policies that encourage companies to adopt sustainable practices. These rules could include carbon pricing mechanisms, mandatory reporting on environmental performance and tax incentives for renewable energy investments.
Why do companies continue their environmentally harmful practices?
The reasons include:
Profit-oriented model
The goal of most companies is to maximize profits and this often leads to companies adopting practices that are potentially harmful to the environment and using cheaper methods.
Making changes is expensive
Implementing environmentally friendly practices often requires companies to change their entire processes and machines, which is not easy and can cost a lot of money, so companies sometimes forego implementation.
Lack of financial incentives
It becomes difficult for companies to explain the implementation of sustainable practices to their shareholders because the implementation requires a series of changes in the companies and also does not bring any financial benefits.
Weak enforcement
Due to the lack of proper environmental laws and weak enforcement, companies often escape fines and liability.
What is the legal framework for environmental liability in India?
According to Section 166(2) of the Companies Act, 2013:
“A director of a corporation must act in good faith to promote the purposes of the corporation for the benefit of its members as a whole and in the best interests of the corporation, its employees, the shareholders, the community and for the protection of the environment.”
Section 166(7) of the Companies Act 2013 states:
If any director of the company contravenes the provisions of Section 166(2) of the Companies Act, 2013, such director shall be liable to a fine which shall not be less than one lakh rupees but may extend to five lakh rupees.
Other environment-related laws in India include:
- The Environmental Protection Act 1986
- The Water (Prevention and Control of Pollution) Act, 1974
- The Air (Prevention and Control of Pollution) Act, 1981
- The Forest Protection Act of 1980
- The Biological Diversity Act of 1980
- The Wildlife Protection Act of 2002
The National Green Tribunal is the specialist body that deals with environmental issues.
Jurisprudence on the environment and companies
Tata Consultancy Services Ltd. vs. Cyrus Investments (P) Ltd. [(2021) 9 SCC 449] (“Tata Mistry Case”).
The Court observed that “the history of the development of the corporate world shows that it has evolved from (i) familial to (ii) contractual and managerial to (iii) a regime of social accountability and responsibility.” This is why Section 166 speaks (2) also of a director’s duty to protect the environment, in addition to his duties: (i) to promote the objectives of the corporation for the benefit of its members as a whole; and (ii) act in the best interests of the company, its employees, shareholders and the community.”
MC Mehta v. Union of India (1986)
Known as the Oleum Gas Leak Case, the Supreme Court applied the “deep pocket theory” in this case, which states that the amount of compensation should be determined by the size and financial strength of the company. As a result, companies with greater financial performance must pay higher compensation.
Corporate social responsibility
Section 135 of the Companies Act, 2013 states that companies having a net worth of ₹500 crore or more, a turnover of ₹1000 crore or more or a net profit of ₹5 crore or more during a financial year must report at least 2% of their average net profit for the last 3 years Years from CSR activities.
CSR encompasses many activities, such as environmental sustainability initiatives as well as community engagement and philanthropy.
Many companies have used their corporate CSR funds for environmental initiatives.
For example, Tata Group has an initiative called Amrutdhara that focuses on water conservation and access.
ITC also has CSR policies that focus on deforestation, biodiversity conservation, sustainable supply chain and responsible sourcing.
These initiatives not only benefit the environment but also enhance the company’s reputation as more and more Indians today are becoming more environmentally conscious and are likely to support those who focus on sustainability.
What influence does corporate leadership have on companies in adopting environmentally friendly practices?
Corporate governance refers to the manner and system of rules according to which a company operates. A company’s board of directors should incorporate environmental aspects into its corporate governance. The Securities and Exchange Board of India [SEBI] has commissioned the 1,000 largest listed companies to submit a business responsibility and sustainability report [BRSR] from fiscal year 2023-2024. It takes into account a company’s environmental, social and governance requirements [ESG] practices. The aim is to increase transparency about companies’ sustainable practices and to hold them responsible for sustainable development.
Need for greater accountability in India
Despite strict laws, there is growing demand that companies be held accountable.
- Enforcing environmental laws is still a challenge in India. Companies in India don’t want to comply; Rather, they are happy to pay the fines because the fines imposed are not very high.
- Current regulations only provide for short-term environmental requirements and do not provide for long-term environmental sustainability measures.
- Regulations need to be put in place to give companies full transparency about the processes they use and their impact on the environment. Currently, the processes and impacts are not fully transparent, making it difficult for judicial authorities to hold them accountable.
Suggestions
The government can play a crucial role by offering incentives to companies that adopt environmentally friendly practices. It can offer incentives like:
- Tax relief
- Grants and subsidies
- Preferential treatment in public contracts
This will encourage more companies to change their environmental practices and become more sustainable.
What can we do as consumers?
As consumers, we should do our best to use sustainable products so that companies have an incentive to produce such products. As consumers, we have significant power to influence the behavior of companies and promote environmental sustainability.
Our decisions can increase market demand for environmentally friendly products and practices. Encouraging companies to adopt more sustainable approaches.
Diploma
These companies have contributed to economic growth and improved people’s living standards; There is no doubt about it, but the damage they have caused to the environment cannot be ignored. India has a number of laws and regulations regarding environmental protection, but they are not properly enforced due to corruption and a number of other reasons. To counteract this, a twofold approach must be pursued: On the one hand, companies should be given incentives for sustainable action, and on the other hand, strict enforcement strategies should be developed. Consumers can also contribute to climate protection by choosing goods that are sustainably produced by companies that use sustainable practices.
