ESG Litigation: Environment Law
Social Auditor, has wide expertise to audit the "Non-Financial Business". Audit of climate-change is the business of first pillar of the ESG. The poor, ESG compliance has raised several litigation. This litigation has raised immediate punishment to the directors of company for filing wrong ESG reporting in the BRSR.
This litigation has touched the corner stone of following types of ESG litigation. Somewhere there is failure of ESG compliance and somewhere failure to account correctly the ESG related emission. This mandates complete audit and assurance by independent auditor on the the ESG.
Here, ESG litigation is discussed on the first pillar "Environment". In Social pillar, which is dealing with human resource practice, labor law practice and human right practices have a wide array of judicial impacts running from lower courts to the Hon'ble Supreme Court. This is wide and vast, what I shall touch down separately.
Carbon Emission Case:
In Germany, a number of cases have been seen against the automobile manufacturers seeking to compel them to their legal ESG duty on carbon emissions target and to cease production of fossil fuel based cars. This complete cease is to be implemented by 2030. In Kaiser vs. Volkswagen, Deutsche vs. Mercedes-Benz and Deutsche vs. Bayerische Motoren, appeals have been filed by car manufacturers in higher court. The way ESG law is tight. This is expected that the lower court decision shall remain in place. ESG issue in carbon emission in India is also challenging and moves in similar pace.
ESG In Indian Law:
In Goa Foundation v. Union of India, Supreme Court imposed a temporary ban on business activities in Goa due to violations of ESG laws.
In Samatha v. State of Andhra Pradesh, the business activities cannot be undertaken without the consent of the local population ruling the climate.
In Subhash Kumar v. State of Bihar, this is decided that the, clean environment is an essential part of the right to life under Article 21 of the Constitution. Hence, ESG compliance is must, to provide clean environment for the citizens.
In Indian Council for Enviro-Legal Action v. Union of India, Supreme Court directed the government to take effective measures to regulate ESG related wastes.
In Vellore Citizens Welfare Forum v. Union of India, the ESG compliance has been promulgated.
In Manushi Sangathan v. Government of Delhi, the court ruled that the restriction on the plying of ESG efficient vehicles was arbitrary and violated the to right to the livelihood.
ESG In RBI Guideline
In recent circular, the RBI has already tightened the nose of the banks in India. The ESG related guidelines include:
a) Broad framework for acceptance of Green Deposits
b) Disclosure framework on Climate-related Financial Risks
c) Guidance on Climate Scenario Analysis and Stress Testing
Further, the Reserve Bank shall have a dedicated webpage on its website which will consolidate all instructions, press releases, publications, speeches and related RBI guideline on the ESG.
The Indian Banks are not going to fund any such company which are not meeting the ESG compliance. If banks and the fund receiver company, both reports wrong ESG declaration, then this is a ground of prosecution. The RBI has mandated independent audit and assurance of ESG in banks as well as fund receiver.
ESG In Income Tax Act:
Section 115BBG in The Income Tax Act, 1961, has provision of Tax on income from transfer of carbon credits. Here, the "carbon credit" in respect of one unit shall mean reduction of one ton of carbon dioxide emissions or emissions of its equivalent gases which is validated by the United Nations Framework on Climate Change and which can be traded in market at its prevailing market price. In case Chemplast Sanmar Limited, Chennai vs Dcit Ltu, it has been held that the receipts arising to the assesse herein on the sale of carbon credits is held to be capital receipt. But, in PCIT v. Lanco Tanjore Power Co. Ltd, a case which is pending before the Hon'ble court, is in favor of the tax payer, where such income is treated as capital receipt not liable to tax. The Tribunal at Amritsar (‘Amritsar ITAT’) in the case of Satia Industries Ltd. v. NFAC, has allowed the income exemption claimed by an assesse on the ESG certificate.
Conclusion:
The ESG compliance is major attention at the Delhi summit meeting of the “G20 New Delhi Leaders’ Declaration”. A fresh resolution to pursue low-carbon emissions, climate resilient and environmentally sustainable development pathways have been adopted, which warrants compulsory audit and assurance on the ESG compliance.
