This piece of the article is authored By:- Dipti Singh is a second-year law student at the Faculty of Law, University of Lucknow.
In India, ESG (Environmental, Social and Governance) disclosures are rapidly moving from voluntary narratives to regulated, material representations, and misstatements about ESG performance are increasingly being treated as a form of corporate‑crime‑adjacent conduct under securities‑law and consumer‑protection frameworks. The rise of green‑labelled funds, sustainability‑linked bonds, and ESG‑ratings‑driven valuations has created incentives for companies and intermediaries to misrepresent the “greenness” of their assets and operations, a practice termed greenwashing.
From an Indian perspective, the primary legal‑response continues to be channelled through SEBI’s regulatory‑and‑statutory‑architecture, particularly the SEBI Act, 1992 and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations). These instruments, reinforced by SEBI‑issued ESG‑guidance and green‑debt‑frameworks, now allow regulators and courts to treat misleading ESG‑disclosures as a form of fraudulent or unfair trade practice in the securities‑market, with serious civil and reputational‑consequences.
2. Statutory Framework: SEBI and the PFUTP Regulations
2.1 SEBI Act, 1992 and ESG‑related Fraud
The Securities and Exchange Board of India Act, 1992 (54 of 1992), especially Section 11, empowers SEBI to regulate the securities market and to protect the interests of investors, including by framing and enforcing regulations against “fraudulent and unfair trade practices.” Section 11(1)(a) specifically authorises SEBI to prohibit unfair methods of raising money, including through the issue of prospectuses or other instruments, and this is now read to include misleading ESG‑statements that influence investment decisions.
2.2 SEBI PFUTP Regulations, 2003
The SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 constitute the core normative‑basis for tackling ESG‑fraud and greenwashing in India. Key provisions include:
3. Indian Case-Law and Regulatory Precedents
3.1PFUTP‑based Enforcement (Pre‑ESG‑era but ESG‑relevant)
Several landmark PFUTP‑cases do not yet involve ESG‑labels, but they establish the doctrinal‑grounding for treating misleading disclosures as securities‑fraud, which is now being extended to ESG‑misrepresentation. In Ketan Parekh v. SEBI (2006), the Supreme Court dealt with large‑scale price‑manipulation and circular trading under the PFUTP‑Regulations, 2003, and emphasised that fraud can be proved through circumstantial‑evidence and patterns of trading, without requiring direct proof of intent. This liberal‑interpretation‑doctrine now supports SEBI’s ability to rely on patterns of misleading ESG‑disclosures (e.g., repeated green‑claims contradicted by underlying data) to establish fraudulent conduct. Similarly, in Shri Dipak Patel v. SEBI and Mr. Sujit Karkera v. SEBI (2012), the Securities Appellate Tribunal (SAT) held that front‑running‑type conduct could fall under PFUTP, reinforcing the view that misleading or deceptive conduct in securities‑markets, even if not explicitly termed “fraud” in the traditional sense, is actionable. These precedents are now cited in ESG‑compliance and enforcement‑discourse to justify interpreting the PFUTP‑Regulations as covering intentional ESG‑misrepresentation in prospectuses, annual reports, and ESG‑ratings‑related disclosures.
3.2 Green‑debt and “Dos and Don’ts” against Greenwashing
SEBI has taken explicit steps to prevent greenwashing in the context of green‑debt securities. In its circular dated 3 February 2023, “Dos and Don’ts Relating to Green Debt Securities to Avoid Occurrences of Greenwashing,” SEBI sets out detailed requirements for issuers to avoid misleading claims about the environmental‑impact of green‑debt‑instruments. Key features include a requirement to clearly define and disclose eligible green‑projects and the allocation of proceeds; clarity on transition risks and the possibility of assets‑turning-“brown” over time; a requirement for third‑party review or certification of green‑debt‑eligibility; and a list of prohibited claims, such as vague “green” labels without project‑specific evidence, and cherry‑picking favourable data. Failure to comply with these “dos and don’ts” can be treated as a breach of SEBI’s regulatory‑guidance, and future enforcement orders may rely on the PFUTP‑framework to characterise such breaches as fraudulent or unfair trade practices in the securities‑market.
4. BRSR, ESG‑Disclosure and Greenwashing
SEBI’s Business Responsibility and Sustainability Reporting (BRSR) Core framework, applicable to top‑listed companies, and the ESG‑schemes framework for mutual funds, constitutes the primary regulatory‑architecture for ESG‑disclosure in India. Under the BRSR‑Core, companies are required to disclose standardised ESG‑data on governance, environment, and social‑parameters; obtain third‑party assurance on their BRSR reports; and ensure that disclosures are aligned with globally recognised sustainability‑frameworks. Recent academic work argues that ESG‑disclosures under the BRSR are not merely aspirational narratives, but regulated representations with potential legal‑consequences if they are materially misleading or unsubstantiated. Misleading sustainability claims in BRSR‑reports or ESG‑fund‑documents can therefore be caught under the PFUTP‑Regulations, particularly Regulation 3 (fraudulent conduct), where a company deliberately misrepresents its ESG‑performance to influence investor decisions; and Regulation 4/5 (unfair trade practices), where green‑claims are vague, unverifiable, or selectively presented to create a false impression. In parallel, the Consumer Protection Act, 2019 and the Central Consumer Protection Authority (CCPA)’s 2024 guidelines on environmental‑claims also allow consumer‑protection‑actions against companies that make unsubstantiated “eco‑friendly” or “carbon‑neutral” claims in marketing, which can run alongside securities‑law‑actions for greenwashing.
5. ESG Fraud as Corporate Crime and Policy Pathways
From an Indian perspective, ESG‑fraud and greenwashing are still largely treated as regulatory‑and‑civil‑enforcement issues, not yet as full‑fledged corporate‑criminal‑offences on the scale of the UK’s “failure‑to‑prevent fraud” model. However, the PFUTP‑Regulations already provide a robust statutory‑basis to impose monetary penalties (up to crores under the SEBI penalty‑scheme, including Section 15HA‑type provisions, where penalties can rise to three times the profits or a substantial fixed‑amount, whichever is higher); trading‑suspensions or listing‑related sanctions for listed companies; and disciplinary‑action against directors and intermediaries, following the Supreme Court’s reinforcement of director‑accountability in PFUTP‑cases. Going forward, policy‑discussion in India is increasingly moving toward explicitly recognising ESG‑fraud as a type of misrepresentation‑offence under securities‑law, and integrating ESG‑fraud‑risk indicators into AML and compliance‑frameworks, so that inconsistent or exaggerated ESG‑disclosures trigger enhanced due‑diligence. In sum, while India has not yet criminalised ESG‑fraud in the same explicit manner as the UK’s Economic Crime and Corporate Transparency Act 2023, its existing PFUTP‑Regulations, supported by SEBI‑issued ESG‑guidance and BRSR‑frameworks, already supply the tools to treat greenwashing as a serious form of securities‑market misconduct—with significant civil‑and‑reputational‑consequences for errant corporations and intermediaries.
CONCLUSION
ESG fraud and greenwashing in India represent a critical challenge at the intersection of securities regulation, investor protection, and sustainable finance. While the SEBI Act, 1992 and PFUTP Regulations, 2003 already provide a robust statutory basis to treat misleading ESG‑claims as fraudulent or unfair trade practices—through Regulation 3 (fraudulent conduct), Regulation 4 (unfair trade practices), and Regulation 5 (broader misrepresentation)—enforcement remains largely civil and regulatory rather than criminal. Landmark precedents such as Ketan Parekh v. SEBI (2006) and Shri Dipak Patel v. SEBI (2012) establish the doctrinal flexibility to address patterns of deceptive disclosures, now increasingly applied to ESG‑misrepresentation in prospectuses, BRSR reports, and green‑debt instruments.
SEBI’s proactive measures—the BRSR‑Core assurance requirements, ESG‑schemes framework mandating 65 per cent verified AUM, and the 2023 “Dos and Don’ts” circular on green‑debt securities—raise the evidentiary bar against unsubstantiated claims. However, to fully deter corporate greenwashing, India must explicitly recognise ESG‑fraud as a misrepresentation offence, enhance penalties under Section 15HA, integrate ESG‑risk indicators into AML frameworks, and leverage the Consumer Protection Act, 2019 alongside securities law. Until such convergence occurs, ESG will remain vulnerable to exploitation as a marketing tool rather than a governance imperative.