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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board's Accountability on ESG

Bharat Chemicals Ltd's Board approved a sustainability report prepared by management without questioning data on emissions, even though an internal audit note flagged inconsistencies in the figures. The report was later found misleading. Which statement best describes the Board's position?

The Board likely failed its duty of due care, skill and diligence because it ignored an internal audit red flag on emissions data before approving the report. Reliance on management is not a defence when warning signs exist, so directors face accountability for misleading disclosures.

  1. ANo exposure, since directors may rely blindly on management
  2. BThe Board's duty of due care, skill and diligence was likely not met, as a flagged red-flag was ignored, exposing directors to accountabilityCorrect
  3. COnly the sustainability head is accountable, never directors
  4. DExposure arises only if the report was filed late

Explanation

Directors must exercise due and reasonable care, skill and diligence and independent judgement. Reliance on management is reasonable only when no red flags exist; ignoring an internal audit warning shows a lapse. Blanket reliance is therefore not a defence.

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