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Compliance involves cost, and hence, it has always been regarded as a Cost Centre. However, I have always had a different opinion. As a prolific writer, I have had a desire to address this issue for more than a decade now. I am happy to be able to do it finally. I hope the following paragraphs on the captioned subject will be self-explanatory. What Is Compliance Cost? Compliance cost includes all the expenses an organisation or entity incurs in order to comply with all the regulations applicable to the industry it belongs to. In a broader sense it would also include salaries of employees assigned the task of compliance, the cost of time spent on complying and the money spent in preparing various reports, new software systems introduced to make the compliance work faster and so on. The common areas of compliance for companies in all industries include company law compliances and regulatory filings, CSR (where applicable), environmental compliances, human resources and labour law compliances, mandatory health and safety compliances, various types of audits, adhering to various applicable standards (e.g. auditing standards, accounting standards, secretarial standards, etc), various types of taxes and so on. Compliance cost rises as regulatory requirements in an industry increases. These regulations may be local, national as well as international in nature. Some apply to all industries, some are based on market capitalisation of the company while others are sector specific. Certain others are applicable based on the financial results of a company. So as the organisation increases its reach to various geographical jurisdictions globally, its compliance cost also increases. Compliance Cost vs. Regulatory Risk Cost vs. Conduct Cost Compliance cost is not the same thing as regulatory risk or conduct cost. Regulatory Risk Cost is the cost associated with the risk that companies face due to potential change in the existing regulations in future. Conduct costs are the costs a company incurs for breaking the extant regulations. Rising compliance cost Compliance costs for companies globally have been rising as regulatory requirements are becoming more stringent. With the advent of the concept of corporate governance, the ‘stakeholders’ view replaced the traditional ‘shareholder’ view that was much narrower in approach, and entailed much lesser compliance cost. There are other factors also that have resulted in increase in compliance cost of companies. Some such factors are globalisation of business, modernisation, increased awareness about environmental pollution and climate change, increased acceptance of social responsibility, requirement of fraud detection and reporting, data privacy measures and so on. New regulations, like those against money laundering, deceptive advertisements and marketing, anti-competitive business, violation of consumer protection laws, prevention of sexual harassment etc., are being continuously introduced, thus adding to the compliance cost. Further, as a company grows, although it benefits from ‘economies of scale’ even with regard to compliance costs, certain costs like those associated with access to the capital market and the resultant compliance cost increases. Cost of Non-Compliance Although cost for compliance has been on the rise globally, a number of studies have revealed that it is even more costly not to comply with regulations. In others words, the cost of non-compliance is always higher than the cost of compliance. A study shows that the former is 2.7 times the latter. To put it simply, a company that avoids or fails to pay the compliance cost in time ends up paying a minimum of 2.7 times the amount of default as non-compliance cost. Thus, in a country like India, failing to meet regulatory compliance requirements in prescribed time and manner costs companies some thousands crore rupees. The staggering amount is because of the fact that costs of non-compliance actually go far beyond simple fines. As they say, the fine a company pays for non-compliance, is only the tip of an iceberg. The actual financial burden of non-compliance would also include other hidden costs. Based on the severity of the non-compliance, one or more of the following costs may also be incurred: - Cost of time and paperwork in replying to show cause notices - Cost of disruption in business - Cost of loss in reputation of the company - Cost of loss of stakeholder’s trust - Cost of loss of productivity - Cost incurred in inspection and investigation - Cost of products that have been seized from market due to con-compliance - Cost of injunctions - Cost of resultant litigation - Cost of compensation - Cost of compounding of offences The above costs form part of cost of non-compliance and are over and above cost of fines, penalties and other fees. Further, repeated non-compliance may result in long term loss of reputation that may even harm the branding of a company, resulting in permanent threat to business. Certain things like customer trust, goodwill, brand image etc. once lost are difficult to win back. Avoiding Cost of Non-Compliance The cost of maintaining compliance is thus much lesser, and impliedly easier to manage, than the cost of dealing with non-compliances. By creating a robust compliance structure and having a good compliance team an organizations can not only avoid fines and penalty but also ensure that there is no reputation damage, slowdown in production and avoidable litigation in future. As they say, “Prevention is better than cure”, the best approach for all organisations to avoid high costs of non-compliance is to have a robust compliance planning and compliance officials. Ineffective Compliance is as bad as Non-Compliance If compliance is not done in time, and in the manner required, it is as bad as non-compliance. Hence, in this article, whenever we talk of compliance cost, we mean efficient and timely compliance cost only. Compliance Cost as a Profit Centre Compliance has always been treated as a Cost Centre. Ensuring high levels of compliance indeed involves some costs. It must be treated as a Profit Centre as, although not directly, but indirectly it does add to a company's bottom line profitability. A proper compliance management system in an organisation ensure the benefits of better efficiency, that leads to higher productivity, lowers chances of process and system failures, lower deviations from standards that reduces rejections, and the consequent cost of rework, enhances reputation leading to better market share and resultant increased revenue. Need for more compliance professionals With increased dedication to avoiding non-compliance, an organisation would ideally require more compliance personnel, in the senior, middle and junior levels. Initially this would seem to increase the cost of compliance, but in the long run, this actually reduces the cost of non-compliance, which is multiple times the cost of compliance incurred. Larger organizations have double the benefit resulting out of economies of scale.

In this age of growing conversation about sustainability and ESG, terms that are making inroads to corporate jargon and increasingly becoming popular around the world are ‘net zero’, ‘carbon neutrality', ‘climate positive’ and so on. Corporate citizens are becoming increasingly aware of their responsibility towards protecting the environment and ensuring sustainability. Often the two terms, ‘carbon neutral’ and ‘net zero’, are used interchangeably, although they do not necessarily mean the same and identical thing. In an era when corporates and professionals are beginning to understand the implications of ESG, sustainability goals, climate change etc. it is pertinent to use the right words in the right place. So, in this article we will talk about these terms and the distinctions between them. In the wake of increased awareness about #ESG reporting, corporations often express their desire (and/or plan) of becoming carbon neutral. This means they intend to remove the equivalent amount of harmful gases emitted to the atmosphere by them. They essentially start the process by cutting down their CO2 emissions to the extent possible first, and top it up by investing in carbon offsetting or carbon mitigation programmes. This is done essentially by investing in ‘carbon sinks’ which mean forests, oceans or other natural environments that are capable of absorbing equal, if not more, carbon from the atmosphere than they emit. Carbon sinks help organisations to offset or balance out their emissions and thereby allow them to maintain a clean corporate conscience. Carbon neutral vs Net zero vs. Climate Positive It is very important to understand the difference between the three terms. Let us look at their definitions first: Carbon Neutral Carbon neutrality means having a balance between emitting carbon and absorbing carbon from the atmosphere. In other words, it means that the sum of carbon any corporation puts into and absorbs from the atmosphere comes to zero. This is done through a combination of efficiency measures that reduce in-house emission and carbon offsetting programmes. Net Zero Net zero on the other hand, implies that the sum total of the amount of a combination of greenhouse gases or GHGs, that include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulphur dioxide (SO2) and other hydrofluorocarbons that is emitted by the corporation’s activity and the amount removed by it from the atmosphere is zero. In other words, an equivalent amount of GHGs emitted by it is removed by it from the atmosphere. This implies that net zero is similar in concept to carbon neutrality, but is larger in scale. Climate positive It is a concept with a much larger implication. It means an attempt at achieving beyond net-zero carbon emissions by removing greenhouse gases beyond what has been released into the atmosphere. Summing up Summarizing our discussion above, we can see that both the concepts of net zero and carbon neutrality have the same objective, which is to remove harmful emissions from the atmosphere, but the scale and kind of emissions removed are different. And achieving a ‘climate positive’ world is the most ideal situation, although, practically not necessarily the most achievable one. A ‘Net Zero’ world Attempts to achieve a net zero world are being taken up across the world, and is a cause for concern for world leaders and features on national agendas. To achieve this, the efforts of governments alone will not suffice, organisations as well as individuals must come together. An organisation targeting at ‘Net Zero’ is ultimately attempting to benefit all its stakeholders. In order to do so, corporations must measure, track and control their GHG emissions through a process called carbon accounting. Some activities that are intended towards achieving this ideal are reducing wastage of electricity, recycling water, avoiding food waste, promoting car pool services amongst employees across all levels, recycling packaging material, reducing use of paper and avoiding wastage of stationery and so on. Not just corporations, as individuals, we also have a role to play towards ensuring a net zero world. We must also adopt a sustainable lifestyle and reduce our carbon footprints to ensure minimum negative impact on the environmental.

Sunset Clause or Sunset Provision A ‘sunset clause’ or ‘sunset provision’ is a measure within a law, regulation, statute or contract that provides that the law, or certain obligations therein, shall cease to have effect after a specific date, unless the law is extended by legislative action. In other words, it is a clause, or a provision contained in a contract or in a regulation that makes the latter automatically expire on a specific date. Sunset Clause had its beginning as a concept in public policy. Most statutes and regulations do not have this clause and hence, they are generally timeless. The only way to end their applicability is by repealing the law. But a ‘sunset clause’ is like a ‘periodic review’ of an enactment or statute. They are generally part of all major international treaties and agreements because there is an assumption that temporary validity of such treaties and agreements have many benefits, the greatest of which is the safeguarding of the sovereignty of states. International investment agreements also contain sunset clauses, but generally the same should not stretch for too long a duration. The construction of sunset clauses varies from regulation to regulation and contract to contract, and there is no specific format for it. Sunset date When relating to a regulation, it is the date on which the law or provision thereof automatically expires, and when relating to a contract, it is the date on which the legal obligations of a party(ies) to a contract will cease to have legal effect. A sunset date is thus like an ‘expiry date’ or ‘termination date’. After this date, a contract will no longer be enforceable. Sunset Laws These are the laws, regulations or statutes that have a sunset clause and are liable to automatically get repealed on a certain date or within a certain time. Ideally such laws are enacted by the government when a quick action (like in an urgent situation) is required and the appropriateness for such law for a longer time is still under study. In urgent situations a law with a sunset clause is more likely to get votes as such clause makes it the much-needed temporary solution. Most of the time-bound legislations and notifications released during the COVID-19 pandemic are examples of sunset laws. The rationale behind The idea behind allowing inclusion of a ‘sunset clause’ in any law is ideally to enable the lawmakers to make a law for a limited period of time when government action is required for a limited time or when the long-term consequences of such law is difficult to foresee. If every law was to be compulsorily timeless, the impossibility to foresee every future happening while drafting such law or regulations would make it a fruitless exercise. We all know, and agree, that “the only constant in life is change”, and we must also ensure that every regulation is made with this in the back of the mind. Sunset Clause in contracts Worldwide, and even in India, sunset clauses are rather common in contracts and agreements. Such clause imposes a contractual obligation affecting one party or more parties that will expire automatically after a certain period of time or a specified ‘sunset date’. The contract termination can also be linked to the occurrence or non-occurrence of an event. Thus, the objective of a sunset clause in a contract is to define the duration of the legal obligation of the contracting parties prior to entering into a contract. However, the contracting parties can mutually agree to modify the contract to either extend the sunset date or eliminate it altogether from the contract. Examples of sunset clause An easy example would be a software license agreement that comes with the sunset clause that a particular software version will no longer be supported after a specific date. This indicates that the software company will not have any obligation with respect that particular software after that ‘sunset’ date. Another example is an insurance contract wherein the parties can include a sunset date on reaching which certain coverages to the insured person will automatically expire. Yet another example may be taken from the real estate industry wherein a clause in a contract may require the property developer to finish the project by a certain date and the failure to comply with the same would render the contract void. Types of Sunset Clause Sunset clauses may be of the following types: (i) Entire vs. sectional : The clause may apply to the entire regulation/contract or only to certain rights and obligations under it. (ii) Direct vs. indirect : The clause may be explicitly mentioned and named so or may be implied by the provisions. (iii) Conditional vs. unconditional : Sunset may be made applicable based on certain conditions or may also be unconditional. (iv) Time-linked vs. Event-linked : Termination of a contract or cessation of a regulation may be linked to a specific time or the occurrence or non-occurrence of an event. (v) Expiration vs. Reauthorisation : The termination may be absolute or subject to a review and reauthorisation after a certain time period. Advantages 1. Social circumstances and legal requirements change over time necessitating the revision of laws 2. With the sunset clause in a contract, one party can compel the other party to act 3. The obligations of one or both party(ies) automatically expires on a specific date. The parties do not have to take any steps to terminate the contract, to invoke rights under the contract or to not be legally bound by the provisions etc. 4. In many cases the sunset clause becomes a starting point of periodic review and renewal Disadvantages 1. In many situations, a party to a contract may use a sunset clause to abuse another party. 2. In most cases parties to a contract often forget the existence of a sunset clause in a contract, and that certain rights expire or that certain obligations are to be performed by a specific date. This will result in them losing certain contractual rights. 3. Sometimes the sunsets come with arbitrary time frame in which the whole idea loses the charm. While drafting such contracts or agreements the parties must be very careful about the clauses and must properly understand the rights, duties and obligations a sunset clause brings and negotiate it before making it a part of the agreement. Sunset Clause in India In India sunset clauses are common in tax and fiscal laws. Examples are tax exemptions, tax holidays etc. A recent amendment in the SEBI (ICDR) Regulations have also brought in sunset clauses in corporate law. We will know more about these in the following paragraphs. Sunset clause share conversion Companies may use a sunset clause to convert certain classes of shares to another class and make the same time-linked or event-linked. The Securities & Exchange Board of India (SEBI) amended the ICDR Regulations in 2019 to introduce superior voting rights (SR) framework specifically for technology intensive issuer companies. I will not go into the rationale behind doing so and would rather prefer to keep it for a future detailed article. The long-debated shares with differential voting rights (DVR) so introduced by SEBI are internationally known as dual class shares (DCS). They come with two types of shares, one with superior voting rights and the other with inferior voting rights. The SR shares have disproportionate voting to their economic ownership and the SR Shareholders get more than one vote per share on a poll. The amendment introduced a framework with many checks and balances including a sunset clause i.e. the duration during which such an SR shareholder shall enjoy superior voting rights. The sunset clauses were inserted to set the date for the conversion of a DVR into shares with equal voting rights. This new framework has two types of sunset clauses: time-linked and event-linked. Under the time-linked sunset, the SR Shares will automatically convert to ordinary shares after 5 years from listing, subject to a one-time extension of further 5 years through a resolution in which the SR shareholders cannot vote. Under the event-linked sunset certain events have been identified on the occurrence of which, the DVR framework would lose its value and therefore, conversion to ordinary shares would be triggered. These events are: (a) Demise of the promoters holding SR shares; (b) Resignation of the SR shareholder from the executive position and (c) Merger or acquisition of the company having SR shareholder where the control would be no longer with SR shareholder. Doctrine of promissory estoppel & validity of sunset clause The doctrine of promissory estoppel is an equitable doctrine that seeks to prevent injustice. It prevents a promisor to retract from his promise where while acting on such promise of the promisor, the promisee has already altered their position. There are many judgments that have held that this doctrine is applicable even against the Government. The issue of withdrawing exemptions, with or without time limit attached to them, has been the subject of judicial decisions several times before the Indian courts. More than 90% such exemptions in India are timeless when issued. The government has the power to terminate the notification at any time, which usually, is done at the time of the annual Finance Budget. Such withdrawal of exemptions are generally not challenged and this is the accepted way in our country. There have been several judgments in the past which state that the government cannot withdraw exemptions as it will hurt the principle of promissory estoppel [Hindustan Spinning and Weaving Mills v Union of India, 1984 (17) ELT 281 (Bom)]. However, in a more recent case, Mind Tree Ltd vs Union of India, 2013 (295) ELT 641 (Kar), the legislative competence of the government to impose a sunset clause in a notification was challenged on the ground that it was against the doctrine of promissory estoppel. The Karnataka High Court rejected the contention and observed that the government is competent to change a notification by imposing a sunset clause and that it does not hurt the doctrine of promissory estoppel. It further observed that it is a settled position of law that every tax exemption and incentive shall have a sunset clause and that every fiscal legislation providing for tax exemption must have a life span fixed in the enactment. The Karnataka High Court even went on to observe that not having a sunset clause is a flaw and the same has been corrected by imposing a sunset clause. This goes on to conclude that the government has legislative competence to issue both time-bound and timeless notifications and withdraw exemptions granted earlier and the same would not amount to violation of the doctrine of promissory estoppel.

One of the newest terms in the corporate lexicon is ‘stewardship’. To understand what it exactly means, we have to dig a little deeper. Meaning of Stewardship The dictionary meaning of stewardship is “the conducting, supervising, or managing of something, especially the careful and responsible management of something entrusted to one's care” [www.merriam-webster.com] The origin of the term goes back to when a ‘steward’ was a household servant and his sole duty was to bring food and drink to his master's dining hall. In course of time the responsibilities of a steward were extended to include other domestic services and household management needs. Further down the line, commercial stewardship evolved and providing service to passengers on ships, trains, flights or luxury buses and to guests in hotels or restaurants were brought within the ambit of the meaning of stewardship. Today the concept of stewardship has also been embraced by other fields (it may seem completely unrelated though) like economics, environment, health, property, information & technology, theology and so on. Stewardship vs Sustainability Both the words are often used interchangeably, but they are not identical concepts. There is a thin line of difference between the two. #Sustainability means ‘meeting current needs without sacrificing the ability of future generations to meet their own needs by balancing environmental, economic and social concerns’ while #stewardship means ‘the careful and responsible management of something entrusted to one's care’. So, while the former authorizes corporations to ‘use’ the resources and at the same time to ensure that the right of the future generations to use the same resources is not jeopardized, the latter essentially makes corporations ‘caretakers’ of the valuable resources. They are not only required to manage them but also to ensure that the same are passed on to the future generations in the same form if not better. Stewardship in business And that brings us to our topic for discussion. Today, stewardship is one of the terms in the ever-expanding corporate lexicon. Stewardship would ideally mean an ethical approach to responsible planning and management of resources. It is generally considered to be the acceptance of responsibility to safeguard the valuables of others. In terms of corporate stewardship, it would ideally mean accepting the responsibility of taking care of the organization or property by those who are entrusted with the duty. Going deeper into it to find the implication, it would mean that those who are entrusted with the wealth or valuables of any kind by others have an obligation to hand those assets down in a shape better than they themselves inherited them. That would imply being responsible beyond one’s own interest (selfless), and such responsibility extending beyond one's lifetime (long-lasting). Thus, in today’s corporate scenario, stewardship would refer to taking responsibility for the business of the company and the effects it has on the world around and on the generations to come. It is taking a humane view and adopting a sustainable approach to business. The traditional concept of ‘shareholder wealth maximization’ has been at the root of many corporate scams, resulting in the creation of a ‘credibility and trust crisis’ for corporations generally. The effect of these have been a paradigm shift towards ‘better corporate governance’, increased compliances, enhanced transparency and wider stakeholder participation. The concept of stewardship is the newest entrant to the list of models being researched upon by champions of corporate sustainability in pursuit of responsible business behaviour. For small and medium-sized businesses, the concept of corporate stewardship may seem not to be helpful in their day-to-day struggle to survive. But as corporations grow bigger, stewardship concept needs to be intertwined with their business ideology for them to thrive. Examples of stewardship The following are some examples of application of the corporate stewardship approach: i. using renewable resources and biodegradable materials, ii. producing products that are not harmful to the environment, iii. using email communication to reduce paper consumption, iv. reducing and recycling of waste, v. ordering items in bulk to cut down on the need for repetitive shipping, vi. considering environmental effects of new inventions and innovations, vii. holding all kinds of meetings in hybrid mode to cut down the necessity of unnecessary travel by participants located at different locations (who can join via video conferencing), viii. encouraging pool car facilities for employees to promote the twin objective of intra- organisation social cost and reducing carbon footprint, ix. having captive power generation unit using renewable energy sources x. promoting the conservation of energy like fuel, electricity etc. Breaking down the concept To understand the concept of business stewardship better, we can break it down to a few sub-concepts as follows: Corporate Stewardship Corporations around the world are increasingly beginning to realise the negative impacts of their businesses (like climate change, deforestation, water shortage, contamination of water, increased pollution, unequal distribution of wealth and so on) and are showing active interest on working to alter the same and being more responsible for their actions not only in the interest of their current and future stakeholders but also in the interest of the society. This approach is called corporate stewardship. Environmental Stewardship In the wake of the increased concerns about the environment, many businesses around the globe have realised that it is important for corporations to be environmentally sustainable. This has prompted them to realign their businesses in a more sustainable way. This approach is called environmental stewardship. Service-Oriented Stewardship The human factor is very important in the success of businesses. Managing the human factor, and the various stakeholders amongst them is vital for long term sustainability. This includes employees, customers, suppliers, partners and local community, and managing the interactions with them and in between them is an important part of business stewardship. Proper codes of conduct and communication manuals must be developed in the interest of business. This is service-oriented stewardship. It may be noted that in India, this concept of corporate stewardship and environmental stewardship forms the basis of the mandatory provisions of Corporate Social Responsibility (#CSR) u/s 135 of the Companies Act, 2013. There are also various laws that have been enacted to make environmental and service-oriented stewardship mandatory, like the environment protection laws, labour laws, consumer protection laws, and so on. However, when we talk of ‘stewardship’, we are implying compliance beyond what is mandatory. Costs of stewardship Taking up a corporate stewardship approach definitely comes at a cost. But this should not be a deterrent to taking up stewardship. In certain cases, the company can offset the same from tax-credits, if any. A company can also benefit of saving when using renewable energy as part of stewardship. In jurisdictions where carbon tax is applicable, stewardship may also help a company save on the same. Conclusion It wouldn’t be wrong to say that all types of businesses engage in some activities that have negative environmental consequences, but not all of them take up stewardship. Adopting the stewardship model can definitely help them find more sustainable practices, while at the same time improve its goodwill and reputation in the society in general and among the c onsumers in particular as also save money in certain cases. As per the stewardship model a business leader should be like a responsible steward contributing to the wellbeing of his customers, suppliers, employees as well as community members. Corporations must act ethically and responsibly for the common good of all stakeholders, the present as well as the future and the planet. Those organisations, that haven’t yet implemented the Stewardship Model, must consider doing it now.

The Securities and Exchange Board of India (SEBI), in its Guidance Note to the Business Responsibility and Sustainability Reporting (BRSR) format as in Annexure II, clearly indicates in point 6 under Principle 6 [Businesses should respect and make efforts to protect and restore the environment] the Details of Scope 1 and Scope 2 greenhouse gas (GHG) emissions and GHG intensity. It mentions the following gases as included in the term ‘green-house gas’: Carbon dioxide (CO2) Methane (CH4) Nitrous oxide (N2O) Hydrofluorocarbons (HFCs) Perfluorocarbons (PFCs) Sulphur hexafluoride (SF6) Nitrogen trifluoride (NF3) Important Note: Any trade in the #GHG cannot be considered in these scopes. In other words, buying or selling of GHG from any #Carbon Exchange etc. or under any international protocol cannot be considered within the scope 1 and scope 2 above. The #GuidanceNote further mentions the following points which are more or less self-explanatory: 2. Scope 1 emissions are direct GHG emissions from sources that are owned or controlled by the entity. Source refers to any physical unit or process that releases GHG into the atmosphere. Further, any emissions that are not physically controlled but result from intentional or unintentional releases of GHGs, such as equipment leakages, methane emissions (eg: from coal mines), shall also be included in the calculations. 3. Scope 2 emissions are energy indirect emissions that result from the generation of purchased or acquired electricity, heating, cooling, and steam consumed by the entity 4. Entities may, on a voluntary basis, provide a breakup of the Scope 1 and Scope 2 emissions into CO2, CH4, N2O, HFCs, PFCs, SF6, NF3. 5. The entity shall exclude any GHG trades (purchase, sale or transfer of GHG emissions) from the calculation of Scope 1 and Scope 2 GHG emissions. 6. The unit for the disclosures shall be metric tonnes of CO2 equivalent. Further, entities should disclose the standards, methodologies, assumptions and/or calculation tools used, including sources of the global warming potential (GWP) rates and emission factors used. 7. Scope 1 and Scope 2 emission intensity per rupee of turnover shall be calculated as the total Scope 1 and Scope 2 emissions generated divided by the total turnover in rupees. 8. Apart from turnover, entities may on a voluntary basis, provide Scope 1 and Scope 2 GHG emission intensity ratio, based on other metrics, such as: • units of product; • production volume (such as metric tons, litres, or MWh); • size (such as m2 floor space); • number of full-time employees The listed entities, while preparing their BRSR Report, must keep the above points in mind. It is very important for them to collect accurate data of GHG emissions in respect of the entity’s operations for proper GHG accounting. GHG Emissions Management System In order to properly manage the GHG emissions by an entity it is important to understand the meaning and types of GHG gases. Definition of Greenhouse Gases Greenhouse gases (GHGs) are some gases in the earth's atmosphere that absorb heat and emit radiant energy. When the sun shines during the day, it warms up the earth's surface, but after sunset, the surface cools down, and releases heat back into the air. During this process some of the heat gets trapped by the greenhouse gases in the atmosphere. It may be noted that GHGs are stronger and last a shorter time in the atmosphere than others, which are less potent but last longer. Types of Greenhouse Gases There are numerous forms of GHG emissions that cause climate change; the 26th UN Climate Change Conference (COP 26) held in Glasgow in October – November 2021 lists seven main types of GHGs. It requires that using the national GHG inventories, each country will report on its progress towards the COP26 targets. The following are the seven types of GHGs explained: Carbon dioxide (CO2): Carbon dioxide is a gas that is released into the atmosphere as a by- product of burning fossil fuels like coal, natural gas, and oil as well as other solid waste, trees, and other biological materials (e.g., manufacture of cement). When carbon dioxide is absorbed by plants as part of the biological carbon cycle, it is taken out of the atmosphere (sequestrated). Methane (CH4): When coal, natural gas, and oil are produced and transported, methane is released into the atmosphere. Land usage, livestock, various agricultural practises, and the decomposition of organic material in municipal solid waste landfills all contribute to methane emissions. Nitrous oxide (N2O): It is a gas that is released during the processing of wastewater, the burning of solid waste, and industrial, agricultural, and forestry operations. Fluorinated gases HFCs, PFCs, SF6 and NF3: These are manmade, potent greenhouse gases that are released through a range of domestic, commercial, and industrial applications and processes. These gases include hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), and nitrogen trifluoride (NF3). Compared to other greenhouse gases, fluorinated gases are normally emitted in smaller amounts, yet they are powerful greenhouse gases. They are sometimes referred to as high-GWP gases because, for a given amount of mass, they trap far more heat than CO2, with GWPs that typically vary from thousands to tens of thousands. The global warming potential (GWP) of each GHGs must be stated in tonnes of carbon dioxide equivalents according to reporting guidelines in order to make it easier for organisations and governments around the world to record emissions in tonne of CO2 equivalent (tCO2e). Global Warming Potential (GWP) Multiplying the tonnes of each gas emitted in a given year by its GWP value yields the reporting entity's overall tonne of CO2 equivalent (tCO2e) emissions. For instance, reduction of one tonne of carbon dioxide would result in a decrease of 1 tCO2e, whereas reduction of one tonne of methane would result in a reduction of 25 tCO2e. The following table lays down the potential GWP of the Green House Gases and lists their sources: [Opinions expressed are author’s personal] Author Profile: Dr. Paritosh Nandi holds a Ph.D. degree in Solar Energy Engineering. He is also a Certified Energy Manager and Certified Energy Auditor by Ministry of Power, Government of India. He has been instrumental in developing Clean Development Mechanism (CDM) projects in organisations for the last eleven years and has hands on expertise in ESG. For more detailed profile visit https://www.linkedin.com/in/paritoshnandi/ Author can be reached at paritoshnandi@gmail.com

The board of directors of a company is the highest governing authority within its management structure. Chosen by shareholders, the directors are considered as the trustees of the company's property and money, and they act as the agents in transactions that are entered into by them on behalf of the company. Their primary responsibility is to look out for the interests of the shareholders. The role of the board is supervisory in nature. It sets strategies, oversees the company’s activities and assesses its performance. The members of the board typically meets at regular intervals. Away from the legal meaning or implication of the term ‘Board of Directors’, the BOD may be classified into different types based on the way of its working. Every board or committee works a little differently from another. Sometimes the difference is minimal, but sometimes it may be more obvious. Because of this there are no tailor-made solutions applicable to similar problems of different Boards. In order to decide on the best approach to corporate governance, it is first important to identify what kind of Board a company has. In the following paragraphs is a quick overview of the different types of Board based on the ways they function. 1. Governing Board - A Board where the Promoter of the company is not a part, is said to be a Governing board. The board members consist of persons other than the promoters and the intention of the Board is to provide direction to the owners w.r.t. the best way of running the organisation. The BOD is concerned mainly with the bigger picture and delegate managerial task to people employed in the organisation. 2. Working Board - As opposed to a governing board, a Working board not only deals with the big picture but also simultaneously implements the policies and strategies. This type of board is generally found in smaller or new organisations. 3. Managing or Executive Board - This type of board has its members as Executive Directors and together they runs everything in the organisation on a day-to-day monitoring basis. Such Board will have necessary subcommittees for quick addressing of specific situations within the organisation. 4. Advisory Board - Advisory boards are similar to governing boards and they provide advice and direction to those who are actually running the organisation; the difference is that in case of governing boards the directions are given to employees, in case of Advisory Board, the advice is given to the Board of Director which is essentially in the form of an Executive or Working board. The role of Advisory Board is important in critical matters and delicate situations. 5. Policy Board - This board is similar to the Advisory board, except that in the Policy board instead of advising, the stress is on formulation of organisational policies, practices and directions to guide employees. The CEO or promoter of the company, or other employees implement the work of the policy board. 6. Cooperation Board - As the name suggests, the Cooperation board is one where all members work and vote equally on all points of business. All members are people elected to represent the members of a co-operative or other non-profit organisation. All board members have a singular goal and work to achieve the same. 7. Cortex Board - The Cortex model emphasizes on the value that an organisation creates in the community. The performance of the organisation is measured on the basis of parameters like community standards, giving back, societal expectations etc. 8. Competency board: This type of board has members with specific expertise that brings distinct advantages to the company. For instance, a board may consist of a member with experience in product design, another in advertising, another in finance and another in law. 9. One-tier & two-tier board - One-tier board of directors or Unitary board of directors) is a system in which a company has a single body of directors that performs all the functions of the board. The board comprises of both executive directors and non-executive directors and it performs both managerial and supervisory duties. As compared to this the two-tier board of directors has two distinct boards of directors, a Management Board and a Supervisory Board and their roles are distinct too. The management board is the lower tier and is accountable to the supervisory board. It makes decisions related to operational aspects of the company while the supervisory board makes strategic decisions.

Though Social enterprises (SEs) comprise a very large part of the ecosystem in the country, being unlisted entities they are unable to tap the capital market. There are investors interested in contributing towards social causes in such entities, but due to information about these entities being in the oblivion, such noble intentions often do not see the light of the day. The novel concept of Social Stock Exchange (SSE) is intended to benefit the private and non-profit sectors by directing more capital to them. Timeline The following is a timeline of development of the concept of SSE in India and the relevant regulatory framework so far: July 2019: In her Budget speech for the fiscal year 2019–20, Finance Minister Smt. Nirmala Sitharaman proposed the setting up of SSE in India. September 2019: SEBI constituted a working group on Social Stock Exchanges to review and recommend the possible structures and mechanisms to facilitate the raising of funds by social enterprises and the associated regulatory framework. May 2020: The Working Group on SSE came up with its detailed report and recommendations. September 2020: Technical Group on Social Stock Exchanges was formed by SEBI based on the recommendation of the Working Group May 2021: The Technical Group on SSE submitted its report September 2021: SEBI took a major decision by approving the creation of Social Stock Exchange under its regulatory ambit. July 16, 2022: A Govt. notification introduced a new instrument called ‘zero coupon zero principal instrument’ under the definition of securities under the Securities Contracts (Regulation) Act, 1956. July 25, 2022: SEBI notified Social Stock Exchange (SSE) Rules providing social entities with an additional avenue of raising funds. SEBI notification made amendments to the SEBI (LODR) Regulations 2015 providing for eligibility of entities in order to be classified as ‘Not for Profit organisation’ and ‘For profit Social Enterprise’. Certain amendments were also made by the SEBI (Issue of Capital And Disclosure Requirements) (Third Amendment) Regulations, 2022 to the provisions of the SEBI (Issue of Capital And Disclosure Requirements) Regulations, 2018. September 19, 2022: SEBI came out with a detailed framework for Social Stock Exchange. SEBI’s framework for SSEs was made based on the suggestions of a working group and technical group formed earlier by the regulator. Among other things the framework specified the minimum pre-requirements for a Not-for-Profit Organisation (NPO) in order to be registered as an SSE with the social stock exchange. October 2022: The Bombay Stock Exchange (BSE) received an in-principle approval from the Securities Exchange Board of India (SEBI) to set-up a Social Stock Exchange (SSE) as a separate segment. December 19, 2022: The National Stock Exchange (NSE) received an in-principle approval from SEBI to set-up a Social Stock Exchange as a separate segment. December 27, 2022: SEBI granted its final approval for setting up of an SSE by BSE. What is a Social Stock Exchange (SSE)? Though Social enterprises (SE) comprise a very large part of the ecosystem in the country, being unlisted entities they are unable to tap the capital market. There are investors interested in contributing towards social causes in such entities, but due to information about these entities being in the oblivion, such noble intentions often do not see the light of the day. To fill this gap, SEBI has come up with the concept of Social Stock Exchanges (SSE). The #SSEs will operate like other stock exchanges and SEs will be allowed to list their securities in this exchange. These securities can then be traded by the public and investors interested in investing in social entities will have the information and clarity about them. SSE Framework SEBI has, vide its notification dated 25th July, 2022, made amendments in the SEBI (LODR) Regulations, 2015 that come into effect immediately. These amendments are called the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2022. These amendments lay down the framework for SSEs and mainly provide for the eligibility of organizations to raise funds and the eligibility of entities to be classified as ‘Not for Profit Organization’ and as ‘For Profit Social Enterprise’. Under the new framework released by SEBI, an SSE will function as a separate division of the existing stock exchanges. The framework specifies the following: i. pre-requirements to be met by an NPO for registration with a Social Stock Exchange, ii. disclosure requirements for NPOs raising funds through the issuance of zero-coupon zero principal instruments iii. annual disclosure requirements on social stock exchanges for NPOs. In addition to the above, SEBI has mandated the listed NPO to submit a statement of utilisation of funds to the SSE within 45 days from the end of quarter. Further, the social enterprises raising funds using SSE also has to disclose an Annual Impact Report (AIR) within 90 days from the end of financial year, capturing the qualitative and quantitative aspects of the social impact generated by the entity and where applicable, the impact that is generated by the project or solution for which funds have been raised through the Social Stock Exchange. Chapter IX-A of SEBI LODR Regulations The amendments have inserted ‘Zero Coupon Zero Principal Instruments’ in the definition of Securities and notified a new chapter IX-A which deals with obligations of social enterprises. Chapter IX-A of SEBI (LODR) contains the new regulations 91B, 91C, 91D, 91E and 91F and these new regulations provide as under: Zero Coupon Zero Principal (ZCZP) A subscription to the new instrument ZCZP is like a philanthropic donation. ZCZP can be publicly or privately issued by a Not-for Profit Organisation (NPO) upon registering with the Social Stock Exchange to raise funds, subject to the fulfilment of eligibility criteria. Currently, the proposed minimum issue size of ZCZP is at Rs 1 crore and the minimum subscription application size is at Rs 2 lakhs. Eligible SEs The following two types of entities are eligible for raising funds through Social Stock Exchange (SSE) A For Profit Social Enterprise whose designated securities are listed on the applicable segment of the Stock Exchange. A Not-for-Profit Organization that is registered on the Social Stock Exchange. A For Profit Social Enterprise is a company or body corporate operating for profit but having social intent and impact as their primary goal and indulging in at least one of the following activities: (i). Eradicating hunger, poverty, malnutrition and inequality; (ii). Promoting health care including mental healthcare, sanitation and making available safe drinking water; (iii). Promoting education, employability and livelihoods; (iv). Promoting gender equality, empowerment of women and LGBTQIA+ communities; (v). Ensuring environmental sustainability, addressing climate change including mitigation and adaptation, forest and wildlife conservation; (vi). Protection of national heritage, art and culture; (vii). Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports; (viii). Supporting incubators of Social Enterprises; (ix). Supporting other platforms that strengthen the non-profit ecosystem in fundraising and capacity building; (x). Promoting livelihoods for rural and urban poor including enhancing income of small and marginal farmers and workers in the non-farm sector; (xi). Slum area development, affordable housing and other interventions to build sustainable and resilient cities; (xii). Disaster management, including relief, rehabilitation and reconstruction activities; (xiii). Promotion of financial inclusion; (xiv). Facilitating access to land and property assets for disadvantaged communities; (xv). Bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection. (xvi). Promoting welfare of migrants and displaced persons; (xvii).Any other area as identified by the Board or Government of India from time to time A Not-for-Profit Organization is a social enterprise covered within any of the following: a charitable trust registered under the Indian Trusts Act, 1882; a charitable trust registered under the public trust statute of the relevant state; a charitable society registered under the Societies Registration Act, 1860; a company incorporated under section 8 of the Companies Act, 2013; any other entity as may be specified by the Board Which entities are not eligible as SE? It may be noted that corporate foundations, political or religious organisations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing, will not be eligible to be identified as a social enterprise. Which SEs are not eligible to raise fund through SSE? The following social enterprises are not eligible to get registered or raise funds through a Social Stock Exchange – a) if any of its promoters, promoter group or directors or selling shareholders (in case of for profit social enterprise) or trustees are debarred from accessing the securities market by SEBI b) if any of the promoters or directors or trustees of the Social Enterprise is a promoter or director of any other company or Social Enterprise which has been debarred from accessing the securities market by SEBI; c) if the Social Enterprise or any of its promoters or directors or trustees is a willful defaulter or a fraudulent borrower; d) If Social Enterprise or any of its promoters or directors or trustees is a willful defaulter or a fraudulent borrower. e) If any of its promoters or directors or trustees is a fugitive economic offender f) if the Social Enterprise or any of its promoters or directors or trustees has been debarred from carrying out its activities or raising funds by the Ministry of Home Affairs or any other ministry of the Central Government or State Government or Charitable Commissioner or any other statutory body Types of social enterprise w.r.t an SSE The Social Stock Exchange framework identifies the two forms of social enterprises that engage in the activity of creating positive social impact: a. Not-for-profit organisation b. For-profit social enterprise In this connection it may be noted that in order to be eligible for being identified as a Social Enterprise under any of the categories above an entity must establish the primacy of its social intent and in order to do so, such Social Enterprise shall meet the following eligibility criteria:- (a) the Social Enterprise shall be indulged in at least one of the activities [(i) to (xvii)] mentioned above under the definition of For Profit Social Enterprises (b) the Social Enterprise shall target underserved or less privileged population segments or regions recording lower performance in the development priorities of central or state governments; (c) the Social Enterprise shall have at least 67% of its activities, qualifying as eligible activities to the target population, to be established through one or more of the following: (i) at least 67% of the immediately preceding 3-year average of revenues comes from providing eligible activities to members of the target population; (ii) at least 67% of the immediately preceding 3-year average of expenditure has been incurred for providing eligible activities to members of the target population; (iii) members of the target population to whom the eligible activities have been provided constitute at least 67% of the immediately preceding 3-year average of the total customer base and/or total number of beneficiaries. Requirements for NPO Registration In order to be eligible as a Social enterprise, a Not-for-Profit Organisation needs to be in operations for 3 years before registering on the Social Stock Exchange. Further, registration of the NPO on the NGO Darpan portal is mandatorily required for registering it on Social Stock Exchange. Once registered on the SSE, an NPO will have to follow all the compliances under the SEBI (LODR) Regulations, 2015 and the circulars thereof even if it does not list any instruments on the SSE. It may be noted that only Indian entities can register in Social Stock Exchange. In order to raise funds through an SSE, an NPO must register with the Social Stock Exchange, but it may continue to raise funds through any other means permissible under the law, whether or not it is registered with the Social Stock Exchange. SEBI, in its circular dated September 19, 2022, has prescribed certain minimum requirements for NPOs willing to register on the Social Stock Exchange. The following are the mandatory requirements: i) The NPO should be in existence for a minimum period of 3 years ii) It has a valid certificate u/s 12A/12AA/12AB of the Income Tax Act, iii) It has a valid 80G registration, iv) It has a minimum of INR 50 lakhs in annual spending and v) It had a minimum of INR 10 lakhs in fund in the past year vi) Any other criteria mentioned by the particular Social stock exchange in order to register on them. Investment by investors Under the SSE framework, only institutional investors and non-institutional investors can invest in securities issued by social enterprises. Retail investors can invest only in securities offered by for-profit social enterprises under the Main Board. A lesson from global SSE experience The concept of Social Stock Exchanges is not even two decades old. Globally, SSEs are still at a nascent stage, and there is a lack of detailed research and analysis on the same. Hence, as India gears up to embrace its SSE framework, it has a lot to learn from the global experience. Seven SSEs (Brazil, Portugal, South Africa, Jamaica, the UK, Singapore, and Canada) were set up around the world, of which only three are still operational (Canada, Singapore and Jamaica). One of the ways in which the Indian SSE differs majorly from the other SSEs is that here the initiative came from the government. So while most SSEs around the world failed due to lack of financial resources, in India public funds can be leveraged to fund it in addition to philanthropic contributions, government funding and listing charges.

Although some natural resources like the sunrays are infinite, other major parts of the environment are not renewable and cannot be used recklessly without any negative consequences. Companies also fail on the social and governance aspects. So, for any kind of business, existence of environmental, social and governance (ESG) risks are inevitable. These cannot be avoided but the preparedness of a business to face them is what gives them an edge over the others. Hence the importance of collection, managing and reporting of ESG data. Businesses will therefore incur some cost in this regard. They must take all these risks into account while making business decisions. In addition, an ESG audit will help evaluate the environmental, social and governance risks of a company’s operations, as also its products or services. Such audit can identify the potential risks so that the same can be addressed adequately before they go out of control. What is ESG Audit? ESG audit is an assessment of the risks a business faces in environmental, social and governance areas. It has nothing to do with the financial, secretarial or cost audit and the process is also entirely different. In such audit an organisation takes up both the external stakeholders and the internal employees to evaluate their performance in management of environmental, social and governance risks. An ESG audit would ideally seeks to answer the following questions: What environmental, social and governance issues are relevant for the organisation? What are the specific risks associated with these issues? What is the organisation’s strategy to manage these risks? Does the company have an ESG policy and risk management system? Good quality ESG audit will help an organisation to track progress of its ESG initiatives, improve on weak areas and identify opportunities. Importance of ESG audit Investors are no longer looking only for good financial returns. A large number of socially motivated investors now want their money to fund companies that are committed to creating a better world through a more sustainable business. In this way they want to encourage companies to act responsibly in addition to delivering financial returns. So ESG audit is important for them as it provides insight into the company’s approach towards these risks and how prepared they are to manage risk. It is also important for the public and helps attract better employees. Such audit is definitely beneficial for the companies as it helps them look at their supply-chain risks and risk management capabilities. Also, the consumers look for products and services that have complied with environmental, social and governance practices and reject those that have not. It is important for banks and financial institutions as before funding a business they would like to assess the risks associated with such funding. To use an economics term, ESG Audit has a definite signalling strength. A company that conducts a regular ESG audit without being mandatorily required to do so gives the message to its stakeholders that it is concerned about the ESG risks and is prepared for any emerging risks. Examples of areas evaluated in an ESG audit Here are some examples: Environment – Environmental standards, environmental management systems, energy saving initiatives, compensation for environmental damage. Social issues – Organisation’s performance on social issues like human rights, employee compensation, their working conditions, employee satisfaction, diversity and labour laws Governance – Corporate transparency and compliances Buildings – Construction in an environmentally friendly way Carbon footprint – Plan for monitoring carbon emissions. Recycling – water management and chemical management Reporting – How promptly and completely organisations report on activities impacting the environment and society. Waste management – Efforts towards reducing waste during all stages of production and management of waste generated. Hazardous materials – Usage of such materials in products and treatment of any hazardous waste generated. ESG Audit vs. Sustainability Audit While ESG audit focuses on the environmental, social and governance risks associated with doing business, sustainability audit is aimed at evaluating how environmentally friendly and socially responsible a company is. The latter doesn’t have anything to do with risks. Mandatory ESG audit – the position in India A study conducted by the European Corporate Governance Institution (ECGI) identified 25 countries that introduced different mandates for disclosure of ESG information between 2000 and 2017. So as on date ESG Reporting is mandatory in many countries but ESG Audit seems more voluntary in nature. For example in the European Union (EU) it is mandated under Directive 2013/34/EU. The Non-Financial Reporting Directive of the EU that came into effect in all the member states in 2018 requires companies to reveal all material environmental, social, and employee-related problems, like bribery, corruption, and human rights issues and how the same were dealt with. In the United Kingdom under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, listed companies are required to provide a report on annual greenhouse gas emissions, diversity and human rights issues. ESG Reporting is also mandatory under FRC’s Stewardship Code. In Australia ESG Reporting is mandated under ASX Corporate Governance Council’s CG50 Guidelines, in Canada under the IIRC’s Corporate Governance Guideline-2.1, in New Zealand under NZX’s Corporate Governance Disclosure Guideline, in Norway it is required under SSM’s Guidance on environmental reporting and in the United States it is mandated under SEC Regulation. China has as many as seven regulations mandating sustainability disclosures. In Indonesia, since 2020 the Indonesia Financial Services Authority has mandated all listed companies to publish Sustainability Reporting. In Brazil ESR reporting is mandatory under CVM Instrução 569, in Chile under CNMC Resolution N#105, in South Africa under PAS 55 and in Mexico under CNBV’s Recommendation on Sustainable Development. In India under SEBI’s BRSR mandate, ESG reporting will be mandatory for the top 1000 listed companies based on #marketcapitalisation from FY 2023-24 onwards. With this India has joined the worldwide ESG bandwagon. However, ESG Audit hasn’t been mandated yet. But ESG Reporting in itself will involve additional costs, time and effort and it totally makes sense for companies to spend a little more of all of that to get a voluntary #ESGAudit done in order to ensure that the steps taken are in the right direction and to correct any mistakes before they go out of control. Concluding observation In view of certain factors like increased urbanisation, increasing population, extensive usage of natural resources, climate change and depletion of forest cover around the world as also as a natural consequence of increasing concerns towards social responsibility of corporate citizens, the recent mandate on ESG Reporting by SEBI is in the right direction. However, such a requirement without any mandatorily prescribed audit runs the risk of ending up being a compliance only in letter and not in spirit. While many companies would definitely go for voluntary ESG Audit, if made mandatory such audit would increase the effectiveness of the ESG Reporting manifolds.

Board Diversity The board of directors of a company plays the pivotal role in making strategic business decisions. To make their decisions more effective, boards need to be diverse and have a more egalitarian approach — one that encourages different voices and opinions, integrates contrasting insights into its decisions and respects diverse background w.r.t. age, gender, culture and profession. In order to be more effective, board discussions need a breadth of perspective which essentially comes from diversity of composition. In this article, I will take up the diversities one by one. Gender Diversity While apparently it might seem so, but worldwide gender parity is not at all recovering, the least of all in India. This is evidenced by the Global Gender Gap Report 2022 issued by the World Economic Forum. The Report states that it will take another 132 years for the world to close the extant global gender gap. In this context it needs to be mentioned that the Global Gender Gap Index benchmarks the current state and evolution of gender parity across four key dimensions: (i) Economic Participation and Opportunity, (ii) Educational Attainment, (iii) Health and Survival and (iv) Political Empowerment. The index has been tracking the progress of different countries of the world towards closing the gender gap in these dimensions since 2006. In the index that lists 146 countries providing a strong cross-country comparison, India occupies the very disappointing 135th position ahead of Afghanistan and Pakistan, but much behind our other neighbours like Nepal (96), Myanmar (106), Srilanka (110) and Bhutan (126), and way behind Bangladesh (71). The Index measures scores on a 0 to 100 scale, where the scores indicate how close a country has moved to closing the gender gap. The cross-country analysis helps identify the most effective policies to close gender gaps. Worldwide Gender Diversity While no country in the world has achieved 100% gender parity till date, the list in Global Gender Gap Report 2022 is topped by Iceland (90.8% parity), followed by Finland (86%), Norway (84.5%) and New Zealand (84.1%). As against these parity percentages, India has achieved only 62.9% gender parity in all those years. The silver lining is that this year India has closed the parity gap by 0.3% over last year. In the 2021 index India stood at the 140th position out of 156. But the more discouraging fact is that in 2006, when the gender gap index was first released, India ranked 98th among 115 countries and the best rank the country has held in the recent years with greater participation of countries was in 2012 when it was placed 105th out of 135 countries. Gender gaps in the workforce as well as leadership roles are driven by many factors. Some of these are societal expectations, gender-biased employer policies, social infrastructure, prioritizing family and caregiving, health, traditionally existent structural barriers, education gap and so on. In the 2022 Report it has been seen that the countries that have fallen behind in the list, the parameters in which they have lacked are essentially (i) and (iv) mentioned above, i.e. (i) Economic Participation and Opportunity and (iv) Political Empowerment. With more women in political and industry leadership, there is not only the benefit of a powerful role model effect but decisions taken also represent broader section of the population. Gender Diversity in India The principle of gender equality has been enshrined in the Constitution of India in its Preamble, the Fundamental Rights, Fundamental Duties and Directive Principles of State Policy. But despite such unambiguous equal rights given to men and women, the Indian society has remained largely male dominated. The workplace is one area where gender inequalities are easily noticed. These are manifested largely through share in workforce, difference in pays for equal work and difficulties of working condition. However, there are a series of new legislations that seek to improve this situation. Board Gender Diversity The gender diversity in boardroom has several benefits and implications. Studies conducted around the world and the resulting growing literature on this links the composition of the board of directors to business outcomes. Surveys have shown that boards and senior management with board diversity perform better and have higher Return on Equity and Return on Capital Employed. Further diversity in board brings diversity of thought patterns. Women are known to be more democratic in their leadership style, they are good listeners, they encourage participative decision-making, they are proactive in anticipating risks and hence, can help strengthen risk management, they are better inclined towards CSR, they are generally more compassionate and so on. Legal position Worldwide, in the recent years, the corporations have come under great public pressure to increase the gender diversity on their boards and as a consequence, countries like Belgium, Spain, France, Iceland, Norway and Italy have passed legislations mandating more female representation in the board. Laws for listed companies in Norway, Spain, France and Iceland require a minimum of 40% representation in the board. In the US, there is no such law in general, but in California, law was passed recently requiring all locally headquartered public listed companies to have at least one female director by 2020. In India the following companies are required to have at least one Woman Director: - Every listed company - Every other public company having (i) Paid-up share capital of INR 100 crore (1 billion) or more, or (ii) Turnover of INR 300 crore (3 billion) or more. [Paid-up share capital or turnover is as per the last date of the latest audited financial statements] On fulfilment of any of the above conditions the Board must appoint a woman director within six months of the date of fulfilment or criteria. This is a truly revolutionary step initiated by the legislature for ensuring gender neutral nature of Board in the corporate world and seeks to recognize the important role of women in promoting economic welfare of the country. However, in a majority of companies to which this rule applies, woman directorship has largely been reduced to a token position. This narrative must change if the benefits of board diversity is to be reaped in the greater sense. Expanding the view of Board Diversity What indisputably follows from the above discussion is that Board diversity is very important. But the above discussion was largely focused on gender diversity alone. But Board diversity as a term has much bigger connotation and includes many types of diversity. One of its components is gender diversity for sure, the others are age diversity, professional diversity and cultural diversity. The impact of a diverse board on business are far-reaching, but concentrating on only one form of diversity is not sufficient. All these types of diversities increase the diversity of perspectives represented at the board level. Achieving gender parity has been the top priority worldwide, although as per the recent indices mentioned above, the world has a long way to go even in that regard. But imagining that with all regulatory and social pressures, gender diversity is achieved faster; even then just achieving this will not help the board of a company reach its full potential. The other types of diversities must be introduced and maintained. And this, should ideally be, in spirit and not just in letter, i.e., not just for the sake of mandatory compliance. For this, the company managements must come out of the ‘checking the box’ approach and spend time and energy towards achieving ‘real’ board diversity. Introducing a member of the board to enhance its diversity (whether gender, age, culture or profession) should not reduce that new person to a ‘token’. Nobody likes to be a token. Also a board with diversity just in ‘token’ form is like a vehicle with square wheels, that is incapable of doing its job. Age, Cultural and Professional Diversity There are no two opinions about the importance of having the board composition in such a manner that people of different age groups are well represented. While the aged persons will have an edge on their experience and expertise, the younger ones will beam with enthusiasm, energy, positivity, better technological knowledge and risk-taking approach. While the younger board members would like to jump at every new opportunity, the older ones can help keep them level-headed. When it comes to cultural diversity, this again is very important as diversity in background here can increase the perspective of board decisions. As for professional diversity, there is hardly any doubt that a board needs to be professionally balanced so that all aspects of corporate governance are given equal weightage and due compliances are done as required by law.

To understand what ‘Greenwashing’ is, we must first know why at all we are talking about it today. Greenwashing is related to ESG disclosure. ESG is an acronym for Environmental, Social and Governance. It is a framework for understanding and measuring how sustainably an organization is operating. ESG takes the holistic view that sustainability extends beyond just environmental issues. Proper ESG disclosure helps stakeholders like investors, creditors, employees, prospective customers, etc. understand how a company is managing its ESG risks and opportunities. Wrong or misleading ESG disclosures would lead to #greenwashing. So what is Greenwashing? The term ‘Greenwashing’ means making outright false, vague, misleading or unsubstantiated claims about the sustainability of a product or service or even about the business operation of the organisation. Greenwashing is often done intentionally by an organisation to market its products or services. However, sometimes such greenwashing may also be unintentional or due to the management’s lack of knowledge or understanding about the same. In the heydeys of corporate sustainability as a buzzword, greenwashing would essentially mean false and misleading environmental claims or statements. Corporate Sustainability was often used by organisations only as a marketing tool to overstate or misrepresent its environmental initiatives and impacts. But now, with the advent of the new term ‘ESG’ in the corporate jargon, the expanded definition of greenwashing would essentially include false and unsubstantiated claims about the organisation’s social and governance factors as well. Greenwashing would take place when the management of an organisation would wish their disclosures to give the impression that they have engaged in proper ESG analysis and reporting but when in reality they have not. As stated earlier, this may be intentional or unintentional. So here lies the similarity between greenwashing and ‘window dressing’ of financial statement. In the latter, a much well known concept by now, the management of a company resorts to unfair means to improve the appearance of its financial statements before it is released to the public. It is an established menace, is illegal, and must be avoided at all costs. The same applies to greenwashing. Why would management tend to engage in Greenwashing? Today, there is a need of rigorous ESG analysis under the pressure of global business environment. Efforts towards greater sustainability have created the need for organisations worldwide to be more transparent about what initiatives they are taking to manage environmental, social and governance risks. Regulatory bodies and stock exchanges in most countries have mandated ESG reporting. In India also ESG reporting is going to be mandatory for the top 1000 listed companies by market capitalisation from FY 2023-24 onwards as per the SEBI’s newest BRSR framework. The management of these public listed companies are now required to disclose full information about the organisation’s environmental as well as social impact, and its corporate governance practices. Not making the ESG disclosure would not only result in loss of market reputation, but also result in non-compliance. Under this pressure, greenwashing may actually result from the reckless action of the management (that probably didn’t understand the difficulty level or seriousness level of the ESG disclosure). However, it is also highly probable that some organisations may intentionally include in their annual report false, vague or misleading claims about their initiatives towards sustainability in order to appear to be engaging in proper ESG analysis and disclosure. How to avoid greenwashing? Where the management wants to avoid the perception of greenwashing, it must present its ESG disclosures using a widely accepted global reporting framework like the Global Reporting Initiative (GRI), Principles for Responsible Investment (PRI), Carbon Disclosure Project (CDP) or Sustainability Accounting Standards Board (SASB). All these have a standardized system of presentation of ESG information and require organisations to include considerable data and metrics w.r.t. its E, S and G. The good news is that globally initiatives are also being taken to bring out a unified standard for disclosure of ESG. To understand how to avoid greenwashing better, let us take the individual elements one by one. (i) Environmental Sustainability – Under this parameter, one may undertake greenwashing by falsely making general claims about improvements in the organisation’s carbon footprint without any actual data to support the claim. (ii) Social Impact – A company may be charged of greenwashing if it falsely claims about employee training programmes, employee absenteeism, community support initiatives etc. (iii) Corporate Governance – Non-disclosure of any non-compliance may amount to intentional greenwashing. Examples of Greenwashing Some of the most talked about worldwide instances of greenwashing rep orted in the recent years are as follows: IKEA – In 2020 the Swedish giant that happens to be the largest wood consumer in the world was found to be using illegally procured wood from the forests of Ukraine that is home to endangered animals. The wood was certified by Forest Stewardship Council that is considered as Gold standard in forest accreditation. IKEA itself is known for its high sustainability standards. However, in this matter both had engaged in greenwashing. Ryanair – In 2020 this airlines company was charged of greenwashing when they falsely claimed themselves to be ‘lowest emissions airline’. McDonald’s – In 2019 McDonald’s introduced paper straws as a sustainability initiative. But the straws turned out to be non-recyclable. Not only that, the raw material for the paper for straws was procured by mass cutting down of trees. KLM Airlines – In 2021-22 a lawsuit was filed against this air carrier for their misleading ‘carbon emission free’ claims. Their slogans was ‘Be a hero, fly CO2 zero’. Volkswagen – In 2015 Volkswagen admitted to cheating emission tests by fitting its vehicles with a certain device that had a software to reduce emissions during tests. However in reality, the vehicles were emitting more than 40 times the allowable limit for pollutants. Nestlé – In 2018 this company was called out for greenwashing when it claimed its packaging material to be 100% recyclable and reusable by 2025. It was stated that this claim was ‘greenwashing baby steps to tackle a crisis it helped to create’.

Risk Management Committee is a committee formed to oversee the risk management policy and global risk management framework of a company. This committee helps the Board in identifying the risk exposure of the company and ensuring that proper framework relating to risk identification and its mitigation is in place. Under SEBI (LODR) As of now constitution of Risk Management Committee is mandatory for certain listed entities only. Regulation 21 of SEBI (LODR) provides for the constitution of a Risk Management Committee by a listed company. Clause (1) provides that the board of directors of such company shall constitute a Risk Management Committee. Applicability Clause (5) provides that constitution of such committee is mandatory for the following: Top 1000 listed entities on the basis of market capitalization as at the end of the immediate preceding financial year and a ‘high value debt listed entity’. It may be noted that initially the regulation was applicable to only the top 100 companies and later to the top 500 companies. Composition The Committee is required to have a minimum of 3 members, majority of them being directors including at least one independent director, and in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk Management Committee is required to comprise of independent directors. This implies that not all the members of the committee are required to be directors of the company and even senior executives of the listed entity may be members of the committee. However, the Chairperson of the committee has to be a director. Meeting of the committee While the earlier requirement was of a minimum of one meeting every year, at present, the risk management committee is required to meet at least twice a year. On a continuous basis not more than 180 days shall elapse between any two consecutive meetings of the committee. The quorum for the meeting is either two members or one third of the total members of the committee, whichever is higher, including at least one member of the board of directors in attendance. Role & responsibilities The board of directors of the listed entity is required to define the role and responsibility of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit such function shall specifically cover cyber security. Part D of Schedule II of SEBI (LODR) Regulations, 2015 requires the Risk Management Committee to formulate framework for identifying risks faced by entity, suggest measures for risk mitigation, overseeing implementation of scheme, evaluating adequacy of risk management systems. Under Companies Act, 2013 The Company Law Committee Report of 2022 has recommended many changes to the Companies Act, 2013 that are aimed at promoting greater ease of doing business in India. These include introducing many new concepts, structural changes, streamlining the process for audits, mergers etc., removal of ambiguities, improving the corporate processes as well as improving compliance procedures. Of the many recommendations of the Company Law Committee for Companies Act, 2013 one is for the constitution of Risk Management Committee by certain companies. One may note here that u/s 134(3)(n) of the Companies Act, 2013, the Board Report must contain a statement indicating the development and implementation of a Risk Management Policy for the company, including the identification of risks that may pose a threat to the existence of company. Further u/s 177(4)(vii) of the Companies Act, 2013 the Audit Committee has an obligation to evaluate the company’s internal financial controls and risk management systems. In addition to this, Part II of Schedule IV of the Companies Act, 2013 requires an Independent director of a company to bring an independent judgment to the board deliberations regarding the risk management systems of the company. So the CA, 2013 does not specifically contain any provisions with respect to constitution of a Risk Management Committee. In the light of the COVID-19 pandemic, it was felt that proper risk management allows a company to function efficiently and facilitates its development. Therefore, the Company Law Committee has recommended the inclusion of new provisions in the Companies Act, 2013 with respect to constitution of Risk Management Committee, as a separate committee of the board, for certain class of companies as may be prescribed by the Central Government. It will be interesting to follow further developments in this regard.

The latest Report of the Company Law Committee presented in 2022 has recommended numerous changes in the Companies Act, 2013. Apart from removing ambiguities, streamlining process for audit, mergers etc., tightening compliances and promoting further ease of doing business, the report has also introduced certain new concepts. Restricted Stock Units (RSUs) and Stock Appreciation Rights (SARs) are two such new concepts. These may be issued to employees of a company in addition to monetary remuneration. The report has recommended insertion of enabling provisions in the CA 2013 for issuance of RSUs and SARs. What are RSU and SRA? The committee was of the opinion that in addition to monetary remuneration, the employees a company may be paid compensation that is linked to its shares, thus granting the employees ownership rights in the company. These schemes allow employees to subscribe to the company’s equity capital. Restricted Stock Units (RSUs) have in the recent years become quite popular among venture companies as a hybrid of stock options and restricted stock. These, however, do not give the employee an option to purchase or subscribe to the company’s shares directly. Rather under this scheme there will be a vesting period and the employee will be entitled to the shares at the end of the vesting period, subject to the conditions related to the duration of employment and performance of the employee being met. In effect it is a promise by the employer to grant restricted stock to an employee at a specified point in the future in (delayed) recognition of the employee’s contribution. These are also known as restricted securities and are fully transferable from the issuing company to the receiving employee until certain conditions (or restrictions) have been met. Only upon satisfaction of those conditions, the restriction is removed, and the stock becomes transferable to the said employee. Stock Appreciation Rights (SARs), on the other hand, are incentive or deferred compensation tied to the performance of the company’s stock. This right provides the employees the monetary equivalent of the appreciation in the value of a specified number of shares over a specified period. It is like an award which provides the employee the opportunity to profit from the appreciation in share value of the company over a certain period of time. It may also be paid by way of shares of the company. It is like a bonus where the company performs well financially over period. Although SARs resembles employee stock options, unlike the latter an employee does not need to buy or hold shares of the company to benefit from an increase in the stock value. In many jurisdictions worldwide SARs is also referred to as phantom stock. But while phantom stock may pay dividends, SARs cannot. While SARs have been defined under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, there is no existing definition or regulation for RSUs as of now. The Committee’s recommendation is to recognize both the concepts under the Companies Act, 2013. How to issue RSA and SAR? In order to make RSUs and SARs a reality, the Company Law Committee in its report has proposed amendment to section 62(1) of the Companies Act, 2013. The committee has proposed that if a company proposed to use these schemes, it will require the issue of further securities by the company. Such issuance can only be done after the approval of the shareholders by a special resolution. The enabling framework in the Companies Act, 2013 should also contain provisions of an annual omnibus approval by the shareholders of the company to avoid fresh approvals each time such allotment is planned. Accounting and Tax Implications These plans are like deferred cash compensation and have a lot of accounting and tax implications. As for accounting, the companies will have to figure out how to pay for the shares that the employees want to cash in. Further, the issuing company should not only make the promise to pay, it should actually put aside the funds. Worldwide, restricted stock has an edge over employee stock options, because of favourable accounting rules and income tax treatment. If the recommendations of CLC sees the light of the day, a lot of necessary amendments will also have to be made in the Income Tax Act.