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Legally Green: The Intersection of Business and Environmental Sustainability

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   31-Jan-2024 | Maitri Singh

As the world grapples with the adverse effects of climate change, organisations both at national and international are striving towards NET ZERO emissions, aspiring to fulfil sustainable development goals in the imminent future and are also examining the role of both small and large businesses and their contribution in the same.

Before going into specifics, let us look at what Sustainable development means. According to the UN’s World Commission for Environment and Development 1987 Report “Our Common Future” also known as the “Brundtland Report”, Sustainable development is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

Business and Sustainability - Evolving Definition

In earlier times, businesses often used the term 'sustainability' to describe a company's ability to maintain steady growth in its earnings. However, over the last two decades, the meaning of this term has undergone a significant transformation in tandem with the evolving global landscape as well as awareness about the environment and climate change. Today, 'sustainability' in the business world has taken on a broader connotation and is being associated with organisations' philanthropic actions that are aimed at environmental conservation including actions such as investing in eco-friendly projects, supporting or funding conservation projects, and more importantly adopting environmentally responsible business strategies.

Role and Interest of Businesses in Sustainable Development

There are very distinct reasons why businesses in the present times feel both pressure and opportunity to adhere to the sustainable development goals (SDGs) set by the UN General Assembly in 2015, which is intended to be achieved by the year 2030. These reasons include:

  • Pressure from stakeholders including the government authorities for compliance with regulations and policies in line with the SDGs and therefore businesses that fail to comply fear legal and financial consequences.
  • The customers or consumers have become more aware of climate change. In January 2020, the World Economic Forum reported that nearly half of European citizens—and 3 in 4 Chinese citizens—consider climate change a major threat to society.
    • Therefore the businesses that prioritise and promote sustainability get an edge over other businesses which leads to increased loyalty from the customers and overall an improved brand value.
  • The employees are increasingly looking for purpose-led employers who care about the environment when deciding a workplace. A report by the IBM Institute for Business Value mentioned that 71% of employment seekers and employees find environmentally sustainable companies attractive employers.
  • As the SDGs essentially focus on reducing waste, and improving efficiency as well as lowering costs. By designing strategies that centre on sustainability, businesses can and are reducing their environmental impact and costs as well. These innovations will further offer them an advantage over other businesses in the market.

UN Guidelines on Corporate Responsibility

The United Nations ‘Guiding Principles on Business and Human Rights’ also discusses the responsibility of corporations to respect human rights, which clearly states that enterprises also have responsibilities towards human rights.

In its foundational principle, enterprises are directed to “avoid causing or contributing to adverse human rights impacts through their activities, and address such impacts when they occur and at the same time seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts”.

For instance, UN Guiding Principles on Business and Human Rights says all businesses, including those in the plastics sector, have a responsibility to respect human rights, and thus business enterprises should have commitments and systems in place to identify, and prevent any negative human rights impacts stemming from the lifecycle of plastics, including production, design, use and disposal which includes, disclosure of the full chemical composition of their plastic materials and products as well.

Corporate Social Responsibility (CSR)

Consequently, this realisation paved the way for corporate environmentalism or the business aspect of environmentalism and the phenomenon of ‘Corporate Social Responsibility’ (CSR) gained momentum among business leaders.

  • CSR can be defined as a concept in which companies choose to include social and environmental considerations in how they run their business and engage with stakeholders.
  • It's a voluntary effort that goes beyond just profit-making to consciously contribute positively to society and the environment. In doing so companies focus on three factors: people, planet, and profit.
  • It is important to note that CSR in India is different from CSR in other nations, as CSR in India is regulated by the government through the Companies Act of 2013 which requires companies with a net worth of Rs 500 crore or more or those that have generated revenues of Rs 1000 crore or more, to spend at least 2% of their average net profit over the previous three years on CSR initiatives and should be done in compliance with CSR guidelines established by India’s Ministry of Corporate Affairs.

The Challenge of Greenwashing

While the green market is proliferating, it is followed by the phenomenon of greenwashing. Greenwashing can be defined as a “practice of making misleading or false environmental claims about a product or service to make it appear more environmentally friendly than it is”.

  • A study carried out by the Advertising Standards Council of India (ASCI) revealed findings that 79% of green claims made in Indian advertisements were misleading or have been exaggerated.
    • For instance, Adani Power, a subsidiary of the Adani Group, faced accusations of greenwashing for falsely claiming compliance of its Mundra power plant with environmental regulations.
    • Despite being fined Rs. 100 crore in 2013 by the National Green Tribunal (NGT) for environmental damage, the company still asserted adherence to regulations and commitment to sustainable development, which was later proved wrong in a 2019 investigation.
  • This shows that there is a huge gap in the existing sustainable market vs. actual sustainability impact.

Aligning with Sustainability

While at times designing strategies according to sustainable development goals can seem challenging and unworthy to some, there are effective ways through which Businesses can align with the UN SDGs. The practices include:

  • Developing sustainable supply chains, including using sustainable products, reducing waste, and placing fair labour practices.
  • Investing in renewable energy sources such as solar, wind, and hydroelectric power will not only reduce the carbon footprint and contribute to the SDG 7 but would ensure accessibility and ‘Just Transition’ to reliable, affordable, sustainable as well as modern energy sources for all.
  • Incorporate principles of the circular economy, and try to extend the lifespan of resources by promoting material reuse and recycling which aligns with SDG 12 and contributes to waste reduction.
  • Promote, invest, and offer space to local artisans to avoid investing or developing fast fashion brands.
  • Businesses can utilise their financial resources to fund sustainable development initiatives, such as investing in companies that prioritise sustainability or issuing green bonds to fund renewable energy projects, thus contributing to SDG 17 and strengthening partnerships for the achievement of the said goals.