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With the increase in corporate entities, there has also been an increase in economic growth and development, increased employment and improved livelihoods for a number of people. But this growth and development also has a negative outcome, which is environmental degradation.
Like many instances, there are two sides to a coin.
On one hand, companies have created lakhs of jobs, stimulated the economy and increased the living standards of the people.
However, on the other side, it has led to companies adopting practices that harm the environment and contribute towards global warming, climate change and the depletion of natural resources. This has also affected people’s dependence on natural resources for their daily living. And as the size and business of the companies increase, it increases the consumption of the natural resources.
Companies have the power to change the shopping habits of its customers with their campaigns. Celebrities often create an impact on their audiences and companies have the power and resources to collaborate with them. People often listen to celebrities because, at times, they think of them as role models. However, despite their potential to drive positive change and increase environmental awareness, many companies are reluctant to take responsibility for the environmental impact they cause. They may prioritise short-term profits over long-term sustainability, fearing that implementing eco-friendly practices could compromise their financial performance. Additionally, 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 regulations could include carbon pricing mechanisms, mandatory reporting of environmental performance, and tax incentives for renewable energy investments.
The reasons include:
The goal of most of the companies is to maximise profits and this often leads companies to follow practices that might be harmful for the environment and adopt cheaper ways.
Implementing practices that are environmentally friendly often requires businesses to change their overall procedures and machinery, which is not easy to do and may cost a large amount of money so sometimes companies avoid implementing them.
It becomes difficult for companies to explain to their shareholders about implementing sustainable practices because implementing them requires a number of changes in the companies and does not reap any financial benefits either.
With the absence of proper environmental laws and weak enforcement companies often escape the fines and responsibilities.
“ A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment.”
If a director of the company contravenes the provisions of Section 166(2) of the Companies Act, 2013 then such director shall be punishable with a fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Other laws relating to the environment in India are:
The National Green Tribunal is the specialised bench that deals with environmental matters.
The Court observed that “the history of evolution of the corporate world shows that it has moved from the (i) familial to (ii) contractual and managerial to (iii) a regime of social accountability and responsibility. This is why Section 166(2) also talks about the duty of a Director to protect environment, in addition to his duties to: (i) promote the objects of the company for the benefit of its members as a whole; and (ii) act in the best interests of the company, its employees, the shareholders and the community.”
Famously known as the Oleum Gas leak case, in this the Supreme Court implemented the “deep pockets theory,” which asserts that the compensation amount should be determined by the size and financial strength of the company. Consequently, companies with greater financial capacity have to pay higher compensation.
states that the companies with 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 any financial year must spend at least 2% of their average net profit of the past 3 years on CSR activities.
CSR includes many activities, such as environmental sustainability initiatives and community engagement and philanthropy.
Many companies have used the CSR funds of their companies for environmental initiatives.
For eg- Tata Group has an initiative called Amrutdhara, which focuses on water conservation and access.
ITC also has CSR policies focusing on deforestation, biodiversity conservation, sustainable supply chain and responsible sourcing.
These initiatives not only benefit the environment but also increase the company’s reputation, as more Indians are becoming environment conscious nowadays and are likely to support those that focus on sustainability.
Corporate governance refers to the manner and system of rules through which a company operates. The Board of Directors of a company should include environmental considerations as part of its corporate governance. The Securities and Exchange Board of India [SEBI] has mandated the top 1000 listed entities to submit a Business Responsibility and Sustainability Report [BRSR] from FY 2023-2024. It factors a company’s environmental, Social and governance [ESG] practices. It aims to increase transparency about the sustainable practices of the companies and make them accountable for sustainable development.
Despite having strict laws, their is a growing demand that corporations should be held accountable.
The government can play a crucial role by offering incentives to those companies which adopt environmentally friendly practices. It can offer incentives such as:
This will encourage more companies to change their environmental practices and become more sustainable.
As consumers, we should strive our best to use sustainable products so that the companies will have the incentive to produce such products. As consumers, we have significant power to influence corporate behaviour and promote environmental sustainability.
Our choices can drive the market demand for eco-friendly products and practices. Encouraging companies to adopt more sustainable approaches.
These companies have contributed towards the growth of the economy and improved the living standards of the people; there is no doubt in that, but the damage they caused to the environment cannot be ignored. India has a number of laws and regulations for environment protection, but they are not enforced properly because of corruption and a number of other reasons. To tackle this, the approach must be twofold: on one side, the companies should be given incentives for sustainable practices and on the other side, strict enforcement strategies should be made. Consumers can also help protect the climate by choosing the goods that have been produced sustainably by companies that follow sustainable practices.
The post appeared first on .
This article has been edited and published by .
Introduction
With the increase in corporate entities, there has also been an increase in economic growth and development, increased employment and improved livelihoods for a number of people. But this growth and development also has a negative outcome, which is environmental degradation.
Like many instances, there are two sides to a coin.
On one hand, companies have created lakhs of jobs, stimulated the economy and increased the living standards of the people.
However, on the other side, it has led to companies adopting practices that harm the environment and contribute towards global warming, climate change and the depletion of natural resources. This has also affected people’s dependence on natural resources for their daily living. And as the size and business of the companies increase, it increases the consumption of the natural resources.
Corporation`s influence on consumer behaviour
Companies have the power to change the shopping habits of its customers with their campaigns. Celebrities often create an impact on their audiences and companies have the power and resources to collaborate with them. People often listen to celebrities because, at times, they think of them as role models. However, despite their potential to drive positive change and increase environmental awareness, many companies are reluctant to take responsibility for the environmental impact they cause. They may prioritise short-term profits over long-term sustainability, fearing that implementing eco-friendly practices could compromise their financial performance. Additionally, 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 regulations could include carbon pricing mechanisms, mandatory reporting of environmental performance, and tax incentives for renewable energy investments.
Why are companies continuing with their environmentally degrading practices
The reasons include:
Profit driven model
The goal of most of the companies is to maximise profits and this often leads companies to follow practices that might be harmful for the environment and adopt cheaper ways.
Making change is expensive
Implementing practices that are environmentally friendly often requires businesses to change their overall procedures and machinery, which is not easy to do and may cost a large amount of money so sometimes companies avoid implementing them.
Lack of financial incentives
It becomes difficult for companies to explain to their shareholders about implementing sustainable practices because implementing them requires a number of changes in the companies and does not reap any financial benefits either.
Weak enforcement
With the absence of proper environmental laws and weak enforcement companies often escape the fines and responsibilities.
What is the legal framework for environmental liability in India
“ A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment.”
If a director of the company contravenes the provisions of Section 166(2) of the Companies Act, 2013 then such director shall be punishable with a fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Other laws relating to the environment in India are:
- 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 Conservation Act, 1980
- The Biological Diversity Act, 1980
- The Wildlife Protection Act, 2002
The National Green Tribunal is the specialised bench that deals with environmental matters.
Case laws relating to the environment and companies
The Court observed that “the history of evolution of the corporate world shows that it has moved from the (i) familial to (ii) contractual and managerial to (iii) a regime of social accountability and responsibility. This is why Section 166(2) also talks about the duty of a Director to protect environment, in addition to his duties to: (i) promote the objects of the company for the benefit of its members as a whole; and (ii) act in the best interests of the company, its employees, the shareholders and the community.”
M.C Mehta vs. Union of India (1986)
Famously known as the Oleum Gas leak case, in this the Supreme Court implemented the “deep pockets theory,” which asserts that the compensation amount should be determined by the size and financial strength of the company. Consequently, companies with greater financial capacity have to pay higher compensation.
Corporate social responsibility
states that the companies with 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 any financial year must spend at least 2% of their average net profit of the past 3 years on CSR activities.
CSR includes many activities, such as environmental sustainability initiatives and community engagement and philanthropy.
Many companies have used the CSR funds of their companies for environmental initiatives.
For eg- Tata Group has an initiative called Amrutdhara, which focuses on water conservation and access.
ITC also has CSR policies focusing on deforestation, biodiversity conservation, sustainable supply chain and responsible sourcing.
These initiatives not only benefit the environment but also increase the company’s reputation, as more Indians are becoming environment conscious nowadays and are likely to support those that focus on sustainability.
How does corporate governance impact the companies in adopting environmentally friendly practices
Corporate governance refers to the manner and system of rules through which a company operates. The Board of Directors of a company should include environmental considerations as part of its corporate governance. The Securities and Exchange Board of India [SEBI] has mandated the top 1000 listed entities to submit a Business Responsibility and Sustainability Report [BRSR] from FY 2023-2024. It factors a company’s environmental, Social and governance [ESG] practices. It aims to increase transparency about the sustainable practices of the companies and make them accountable for sustainable development.
Need for stronger accountability in India
Despite having strict laws, their is a growing demand that corporations should be held accountable.
- Enforcing environmental legislation is still a challenge in India. Companies in India do not want to comply with the regulations; rather, they are happy to pay the fines because the fines that are imposed are not very severe.
- Current regulations only have short-term environmental compliances rather than measures for long-term environmental sustainability.
- Regulations must be made to make the companies fully transparent about the procedures they follow and the impact they have on the environment. Currently, the operations and impact are not fully transparent, making it difficult for the legal bodies to hold them accountable.
Suggestions
The government can play a crucial role by offering incentives to those companies which adopt environmentally friendly practices. It can offer incentives such as:
- Tax breaks
- Grants and subsidies
- Preferential treatment in government 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 strive our best to use sustainable products so that the companies will have the incentive to produce such products. As consumers, we have significant power to influence corporate behaviour and promote environmental sustainability.
Our choices can drive the market demand for eco-friendly products and practices. Encouraging companies to adopt more sustainable approaches.
Conclusion
These companies have contributed towards the growth of the economy and improved the living standards of the people; there is no doubt in that, but the damage they caused to the environment cannot be ignored. India has a number of laws and regulations for environment protection, but they are not enforced properly because of corruption and a number of other reasons. To tackle this, the approach must be twofold: on one side, the companies should be given incentives for sustainable practices and on the other side, strict enforcement strategies should be made. Consumers can also help protect the climate by choosing the goods that have been produced sustainably by companies that follow sustainable practices.
The post appeared first on .