INTRODUCTION
Corporate disclosure practices have undergone a significant transformation in recent decades, particularly with the emergence of Environmental, Social and Governance (ESG) reporting. Sustainability disclosures are no longer confined to voluntary corporate social responsibility initiatives but are increasingly integrated into formal reporting structures. Investors, regulators, and financial institutions now rely upon ESG information to assess corporate resilience, regulatory exposure, and long-term sustainability performance. As a result, environmental disclosures have become an important component of corporate governance and market transparency.1
In India, regulatory authorities have also recognised the growing relevance of sustainability reporting. The Securities and Exchange Board of India introduced the Business Responsibility and Sustainability Reporting (BRSR) framework for leading listed companies, requiring them to disclose environmental performance indicators, resource consumption, and climate-related risks. These disclosures reflect a broader global shift toward integrating sustainability concerns within financial decision-making processes. Consequently, ESG reporting now performs functions extending beyond corporate reputation management and increasingly influences investor behaviour and corporate valuation.2
Alongside this development, allegations of greenwashing have increased across multiple jurisdictions. Corporations have been criticised for overstating environmental commitments, selectively presenting sustainability data, or employing vague claims regarding environmental responsibility. While regulatory authorities have attempted to address such practices through consumer protection laws, this approach does not adequately consider the governance mechanisms through which sustainability disclosures are approved. This article therefore examines greenwashing within the framework of directors’ fiduciary duties and argues that misleading sustainability disclosures may constitute a governance failure rather than merely a marketing misrepresentation.3
GREENWASHING AND THE CORPORATE DISCLOSURE FRAMEWORK
Historically, misleading environmental claims were addressed primarily through consumer protection laws and advertising regulation. These frameworks were designed to protect consumers from deceptive commercial practices and were therefore well suited to regulating environmental claims made in product marketing. Under this approach, the central legal question concerned whether environmental representations were likely to mislead consumers regarding the characteristics of goods or services. While this model remains relevant, it does not fully reflect the contemporary role of sustainability disclosures within corporate governance structures.4
Modern ESG disclosures frequently appear within annual reports, integrated financial statements, and investor communications. Institutional investors increasingly rely upon such information to assess environmental risks and evaluate long-term corporate sustainability. Consequently, sustainability narratives now function as governance communications rather than purely promotional statements. When such disclosures contain exaggerated or unverified environmental claims, the resulting distortions may influence investment decisions and financial market behaviour.5
Misleading sustainability disclosures therefore raise concerns that extend beyond consumer deception. Inaccurate environmental representations may artificially enhance corporate reputation, obscure environmental liabilities, or conceal regulatory risks associated with climate policies. Such distortions undermine market transparency and weaken investor confidence in corporate reporting practices. From a governance perspective, the integrity of sustainability disclosures becomes a matter of board oversight rather than merely a question of advertising compliance.6 Recognising this shift requires reconsidering greenwashing within the broader corporate disclosure regime. When environmental narratives are incorporated into official corporate reports and approved by the board of directors, their accuracy becomes an issue of governance responsibility. Directors must therefore ensure that sustainability disclosures reflect accurate assessments of corporate environmental performance rather than aspirational branding narratives disconnected from operational realities.7
FIDUCIARY DUTIES AND ESG GOVERNANCE
Corporate directors occupy a fiduciary position within the governance structure of the company. Their responsibilities include the duty of care, the duty of loyalty, and the obligation to act in good faith while promoting the interests of the corporation. In India, these obligations are codified under Section 166 of the Companies Act, 2013, which requires directors to act with due care, skill, and diligence and to exercise independent judgment in corporate decision-making. These duties extend to decisions and disclosures that may materially affect the corporation’s financial and legal position.8
The duty of care requires directors to exercise informed judgment and maintain effective oversight of corporate risk management systems. Courts have consistently emphasised that directors must ensure the existence of adequate internal controls and monitoring mechanisms capable of identifying risks affecting corporate operations. Environmental liabilities and climate-related risks increasingly fall within this category of material corporate risks. As sustainability reporting becomes integrated into corporate disclosure frameworks, directors must ensure that such disclosures are supported by appropriate verification mechanisms.9
Indian jurisprudence has repeatedly emphasised the fiduciary character of directors’ responsibilities. In Official Liquidator v P.A. Tendolkar, the Supreme Court observed that directors act as trustees of corporate assets and must exercise their powers with diligence and good faith. The Court further emphasised that directors cannot avoid responsibility for corporate misconduct where such misconduct occurs due to negligence or lack of supervision. Although the case concerned financial irregularities, the principle articulated by the Court applies equally to governance failures involving misleading corporate disclosures.10
The fiduciary duty of loyalty also requires directors to avoid conduct that knowingly exposes the corporation to foreseeable harm. If such disclosures are approved without adequate verification procedures, directors may inadvertently expose the corporation to reputational and financial risks. ESG governance therefore requires boards to treat sustainability disclosures with the same seriousness as financial reporting obligations.11
COMPARATIVE REGULATORY DEVELOPMENTS
Regulatory authorities across the world have increasingly recognised the importance of sustainability disclosures within corporate governance frameworks. Financial regulators have begun to scrutinise ESG statements contained within corporate filings and investor communications. This shift reflects the growing understanding that environmental risk constitutes a material factor influencing long-term corporate performance. As a result, inaccurate sustainability disclosures may have implications not only for consumer protection but also for financial market integrity.12
In India, regulatory initiatives have sought to strengthen sustainability disclosure practices among listed entities. The Business Responsibility and Sustainability Reporting framework introduced by the Securities and Exchange Board of India requires companies to disclose detailed information regarding environmental impact, energy consumption, waste management, and climate risk strategies. These disclosures aim to enhance transparency and enable investors to evaluate corporate sustainability performance more effectively. However, the framework primarily emphasises disclosure compliance rather than director-level accountability.13
Judicial developments within Indian corporate law also highlight the importance of responsible corporate governance. In N. Narayanan v Adjudicating Officer, SEBI 14, the Supreme Court held that directors cannot adopt a passive approach to corporate governance and must actively ensure compliance with regulatory requirements. The Court emphasised that directors are responsible for maintaining the integrity of corporate disclosures and cannot escape liability merely by claiming ignorance of corporate misconduct.
These developments indicate a gradual convergence between sustainability regulation and corporate governance principles. Nevertheless, a significant gap remains between sustainability reporting obligations and fiduciary accountability for misleading environmental disclosures.15 Bridging this gap requires recognising ESG misrepresentation as a governance failure rather than simply a regulatory compliance issue.
GOVERNANCE IMPLICATIONS AND ENFORCEMENT CHALLENGES
Distinguishing Aspirational Sustainability Claims from Misrepresentation
Sustainability disclosures frequently contain forward-looking commitments such as carbon neutrality or long-term emission reduction targets. These statements often represent strategic objectives rather than guarantees of present environmental performance16. The challenge lies in determining when aspirational commitments cross the boundary into misleading representations capable of influencing investor decisions.
Evidentiary Difficulties in Establishing Director Responsibility
ESG disclosures typically emerge through complex internal processes involving management reports, sustainability teams, and board committees. This institutional structure can make it difficult to attribute inaccurate environmental claims directly to individual directors. Nevertheless, Indian courts have emphasised that directors must exercise active supervision over corporate governance and cannot remain passive when corporate disclosures affect regulatory compliance.17
Reliance on Expert and Technical Environmental Data
Environmental reporting frequently involves specialised technical data concerning emissions measurement, climate modelling, and environmental compliance. Directors may rely on expert consultants when evaluating such information18. Where inaccuracies arise from flawed technical assessments rather than deliberate exaggeration, establishing fiduciary liability becomes significantly more complicated.
Balancing Director Accountability with Corporate Autonomy
Corporate law traditionally protects directors from liability for decisions taken in good faith within the scope of managerial discretion. Excessive judicial intervention may discourage directors from adopting ambitious sustainability strategies. The challenge therefore lies in ensuring accountability for misleading ESG disclosures while preserving the principle of board autonomy recognised in corporate governance jurisprudence.19
CONCLUSION
The growing institutionalisation of ESG reporting has fundamentally altered the landscape of corporate disclosure practices. Sustainability narratives now influence investor behaviour, regulatory scrutiny, and corporate reputation across global financial markets. Despite this transformation, legal responses to misleading environmental claims remain largely confined to consumer protection and advertising law. Such frameworks fail to address the governance structures through which sustainability disclosures are produced and authorised.
This article has argued that greenwashing should be examined through the doctrine of directors’ fiduciary duties. Sustainability disclosures are frequently reviewed and approved at the board level, and inaccurate environmental representations may expose corporations to regulatory penalties, investor litigation, and reputational harm. In such circumstances, the duties of care, loyalty, and good faith owed by directors assume particular significance.
Aligning ESG reporting with fiduciary accountability represents an important step in strengthening corporate governance in the sustainability era. By recognising environmental disclosures as governance instruments rather than promotional narratives, corporate law can ensure that sustainability commitments reflect genuine responsibility rather than symbolic compliance.
*****
Footnotes
1. Securities and Exchange Board of India, Business Responsibility and Sustainability Reporting Framework (2021).
2. Ibid.
3. Cynthia A. Williams, “Corporate Governance and ESG Disclosure” (2019) 40 University of Pennsylvania Journal of International Law 701.
4. OECD, Environmental Claims and Consumer Protection (2020).
5. Jill Fisch, “ESG Disclosure and Investor Decision-Making” (2021) 107 Cornell Law Review 123.
6. Ibid.
7. Cynthia A. Williams and Jill Fisch, “ESG and Corporate Governance” (2021) 58 Harvard Business Law Review 1.
8. Section 166, Companies Act, 2013.
9. Umakanth Varottil, Corporate Governance in India (Oxford University Press, 2018).
10. Official Liquidator v P.A. Tendolkar, AIR 1973 SC 1104.
11. Ibid.
12. UNEP, Global Sustainable Investment Review (2021).
13. SEBI Circular on BRSR Reporting (2021).
14. (2013) 12 SCC 152.
15. Umakanth Varottil, “Corporate Governance and Sustainability in India” (2019) 31 National Law School of India Review 45.
16. Official Liquidator v P.A. Tendolkar, AIR 1973 SC 1104.
17. N. Narayanan v Adjudicating Officer, SEBI, (2013) 12 SCC 152.
18. Dale & Carrington Investment Pvt Ltd v P.K. Prathapan, (2005) 1 SCC 212.
19. Miheer H. Mafatlal v Mafatlal Industries Ltd, (1997) 1 SCC 579.