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Economic and Business Environment · Environmental Governance

Corporate Environmental Responsibility and ESG Explained

Updated 11 October 2026 · Fact-checked

Corporate environmental responsibility means a business manages its impact on nature and society beyond what the law forces. It uses CSR spending, ESG reporting (BRSR in India), environmental audits and green practices. To answer exam questions, define the term, list its tools, give an Indian example, and state the benefits.

Understand Corporate Environmental Responsibility and ESG

A company uses land, water, energy and raw materials, and it creates waste and emissions. Corporate environmental responsibility means the company accepts that it must manage this impact and not leave the cost to society. Some of it is compulsory under law. Some of it is voluntary.

ESG stands for Environmental, Social and Governance. Environmental covers emissions, energy use, water, waste and biodiversity. Social covers employees, safety, customers and communities. Governance covers the board, ethics, transparency and risk control. Investors use ESG information to judge long-term risk, not just profit.

CSR is the company's contribution to society. In India, the Companies Act, 2013 requires companies that meet the prescribed size limits (net worth, turnover or net profit) to form a CSR Committee and spend a set share of average net profit on CSR activities listed in Schedule VII. Environmental sustainability, including ecological balance, protection of flora and fauna and conservation of natural resources, is one of those listed areas. Read the exact thresholds and rate from your study material.

Reporting and checking. SEBI requires the top listed companies to publish a Business Responsibility and Sustainability Report (BRSR) with their annual report. It gives ESG data in a standard format so that investors can compare companies. An environmental audit is a systematic, documented check of whether a business follows environmental laws, its own policies and good practice. It finds gaps and suggests corrective action.

Green practices are the actions that follow from all this: renewable energy, energy efficiency, water recycling, waste reduction, sustainable sourcing, and cleaner production methods. Companies do this to cut cost, avoid penalties, attract investors and protect their reputation.

Key rules to remember

ESG
ESG = Environmental + Social + Governance
Three pillars. Give one or two examples under each pillar in your answer.
CSR provision (Companies Act, 2013)
CSR spend = prescribed percentage × average net profit of the preceding financial years
Applies only to companies meeting the prescribed net worth, turnover or net profit limits. Learn the exact rate and limits from your study material; do not guess them.
BRSR
BRSR = Business Responsibility and Sustainability Report
Issued by SEBI's framework for listed companies; reports ESG performance in a standard format.
Types of environmental audit
Compliance audit, management system audit, risk or liability audit
Use these as a simple classification. The central idea is a systematic check against laws and policy.

How to solve Corporate Environmental Responsibility and ESG questions

Use the same frame for definition, short-note and explain-type questions on this topic.

  1. 1Read the question and mark the key word: ESG, CSR, BRSR, audit or green practice.
  2. 2Write a one-line definition in plain words.
  3. 3List the components or tools in points, such as three ESG pillars or audit types.
  4. 4Link to the legal or regulatory base: Companies Act for CSR, SEBI for BRSR.
  5. 5Add one Indian example, such as a large company using solar power or recycling water.
  6. 6State two or three benefits to the company and to society.
  7. 7Close with a one-line conclusion that ties it to sustainable development.

Quickest way: D-T-L-E-B frame

When to use it: For short notes and 5 to 8 mark answers when time is tight.

  1. D: Definition in one line.
  2. T: Tools or types in three to five bullets.
  3. L: Law or regulator (Section 135 of the Companies Act, 2013; SEBI for BRSR).
  4. E: One Indian example.
  5. B: Benefits in two bullets.

Common mistakes in Corporate Environmental Responsibility and ESG

  • Treating CSR and ESG as the same thing.

    Both deal with responsible business, so they sound alike.

    Fix: CSR is spending on social and environmental activities, mainly governed by Section 135. ESG is a framework for measuring and reporting performance across three pillars.

  • Writing that all companies must do CSR under Section 135.

    Students skip the condition.

    Fix: State that it applies to companies meeting the prescribed net worth, turnover or net profit limits.

  • Saying BRSR is mandatory for every company.

    Students remember 'SEBI requires it' without the scope.

    Fix: Say it applies to listed companies as prescribed by SEBI, starting with the top listed companies, and check the current scope in your study material.

  • Defining environmental audit as a financial audit.

    The word audit is linked to accounts.

    Fix: Say it is a systematic check of environmental compliance and performance, not of financial statements.

  • Giving only definitions with no example or benefit.

    Students rush through the answer.

    Fix: Always add one Indian example and the benefits, since these earn the extra marks.

  • Putting Governance under Social or leaving out a pillar.

    The pillars overlap in daily life.

    Fix: Memorise E = nature, S = people, G = board and ethics, and give one example each.

Worked examples

Example 1

Explain ESG and its importance for companies. (Short answer)

Show the solution
  1. Definition: ESG stands for Environmental, Social and Governance. It is a framework to measure how responsibly a company operates.
  2. Environmental: emissions, energy and water use, waste management.
  3. Social: employee welfare and safety, fair treatment of customers, community development.
  4. Governance: an independent board, ethical conduct, transparency and risk control.
  5. Importance: it helps investors judge long-term risk, lowers the chance of penalties, improves reputation and can lower the cost of raising funds.
  6. Conclusion: companies with strong ESG practices are better placed for sustainable growth.

Answer: ESG is a three-pillar framework (Environmental, Social, Governance) used to measure responsible business conduct. It matters because it guides investors, reduces regulatory and reputation risk, and supports long-term, sustainable growth.

Example 2

What is an environmental audit? State its objectives and how it relates to BRSR. (Short note)

Show the solution
  1. Meaning: an environmental audit is a systematic, documented and objective check of whether a business follows environmental laws, its own policies and good practice.
  2. Objectives: check legal compliance, find pollution and resource-use problems, reduce risk and cost, and recommend corrective action.
  3. Process in brief: plan the audit, collect data and inspect, compare with standards, report findings, and follow up on actions.
  4. Link to BRSR: audit findings give reliable data on energy, emissions, water and waste, which a listed company discloses in its BRSR.
  5. Conclusion: audits help the company act on environmental issues, and BRSR lets stakeholders see the results.

Answer: An environmental audit is a systematic check of environmental compliance and performance. It finds gaps and suggests fixes, and its data supports the environmental disclosures a listed company makes in its BRSR.

Exam tips

  • Learn the one-line definitions of ESG, CSR, BRSR and environmental audit. Short notes on these are likely.
  • Keep the full forms ready: BRSR is Business Responsibility and Sustainability Report.
  • When Section 135 is mentioned, state that it applies only to companies meeting the prescribed limits.
  • Add one Indian company-style example to lift a plain answer.
  • Link your closing line to sustainable development, since this topic sits within Environmental Governance.

Practice questions from Environmental Governance

Corporate Environmental Responsibility and ESG in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Corporate Environmental Responsibility and ESG: frequently asked questions

What is ESG and why does it matter to companies?

ESG means Environmental, Social and Governance. It is a way to measure how responsibly a company runs its business. Investors, lenders and customers use it to judge long-term risk and reputation.

How is CSR under Section 135 linked to the environment?

Section 135 of the Companies Act, 2013 requires eligible companies to form a CSR Committee and spend on activities listed in Schedule VII. Environmental sustainability and conservation of natural resources are among those activities. So CSR spending can fund environmental work.

What is BRSR in simple words?

BRSR is the Business Responsibility and Sustainability Report. Listed companies prescribed by SEBI publish it with their annual report. It shows their ESG performance in a standard format so investors can compare.

What is an environmental audit in business?

It is a systematic check of whether a business follows environmental laws and its own policies. It finds problems and recommends corrective action. It is different from a financial audit.