Environmental, Social and Governance, or ESG, has become an important part of business evaluation in India.

Today, investors, lenders, multinational companies, private equity firms and large corporate buyers increasingly want to understand how a company manages environmental risks, employees, governance, regulatory compliance and sustainability-related issues before entering into a major transaction or business relationship.

This is where ESG due diligence in India becomes important.

An ESG due diligence exercise examines whether a company has hidden environmental liabilities, labour-related issues, governance weaknesses or sustainability risks that may affect its valuation, reputation or future operations.

For manufacturers, exporters, infrastructure businesses, recycling companies, industrial units and companies looking for investment, ESG due diligence can help identify problems before they become expensive liabilities.

It is also becoming more relevant as India's ESG reporting ecosystem develops through frameworks such as SEBI's Business Responsibility and Sustainability Reporting, or BRSR, and BRSR Core requirements for applicable listed entities.

What Is ESG Due Diligence?

ESG due diligence is a detailed review of a company's environmental, social and governance performance before an investment, acquisition, financing arrangement, partnership or major commercial transaction.

A traditional due diligence process usually focuses on financial, legal and tax matters.

ESG due diligence goes further.

It evaluates whether the company is complying with environmental regulations, managing employees responsibly, operating safely and following good governance practices.

For example, a company may appear financially profitable but may have an expired Consent to Operate, unresolved hazardous waste issues or major workplace safety risks.

These problems can create future costs for the buyer or investor.

The purpose of ESG due diligence is therefore not simply to collect sustainability policies. It is to identify actual risks and determine whether those risks can affect business continuity, valuation or future investment.

Why ESG Due Diligence Is Important in India

ESG due diligence is becoming increasingly relevant because sustainability performance is now influencing investment and supply-chain decisions.

SEBI introduced the BRSR Core framework to strengthen the reliability of selected ESG indicators reported by applicable listed companies. The framework follows a phased applicability approach and is designed to improve the quality and comparability of ESG disclosures.

India's National Guidelines on Responsible Business Conduct also provide a broader framework encouraging responsible business practices across environmental, social and governance areas.

However, ESG due diligence is not limited to listed companies.

Private companies can also face ESG reviews when:

• Raising private equity or institutional investment
• Entering into mergers or acquisitions
• Applying for major project finance
• Becoming suppliers to multinational companies
• Participating in large infrastructure projects
• Expanding into international markets
• Entering long-term partnerships or joint ventures

For growing Indian companies, having strong ESG documentation can therefore support both compliance and commercial opportunities.

Who Needs ESG Due Diligence?

ESG due diligence can be useful across many sectors.

It is particularly important for businesses where environmental, safety or labour risks are relatively high.

These may include manufacturing units, chemical companies, pharmaceutical businesses, recycling plants, renewable energy projects, mining businesses, textile manufacturers, food processing units, infrastructure companies and automotive suppliers.

It is also relevant for:

• Investors evaluating potential investments
• Companies planning acquisitions
• Banks and financial institutions
• Private equity funds
• Foreign investors
• Large companies evaluating suppliers
• Businesses preparing for ESG reporting
• Exporters dealing with international customers

Even MSMEs may increasingly receive ESG questionnaires from customers that want greater transparency within their supply chains.

Major Areas Covered in ESG Due Diligence

A proper ESG review normally covers three broad areas: environmental, social and governance risks.

Environmental Due Diligence

Environmental due diligence evaluates the company's environmental compliance, resource consumption, pollution risks and waste management systems.

For industrial businesses, this section can be particularly important.

The review may examine whether the company has valid:

• Consent to Establish
• Consent to Operate
• Environmental Clearance, where applicable
• Hazardous Waste Authorization
• EPR registrations
• Groundwater approvals
• Waste disposal agreements
• Applicable pollution-control permissions

The due diligence team may also examine historical notices or penalties issued by pollution control authorities.

Environmental risk is not limited to licences.

Energy consumption, water usage, emissions, wastewater treatment and waste management may also be reviewed.

For example, if an industrial plant generates hazardous waste but cannot demonstrate where that waste was legally disposed of, this may become a significant ESG risk.

Social Due Diligence

The social component evaluates how the company manages employees, workers, occupational safety, labour practices and stakeholder relationships.

Important areas may include:

• Employee working conditions
• Contract labour management
• Workplace health and safety
• Minimum wage compliance
• Working hours
• Employee grievance mechanisms
• Gender diversity
• Prevention of sexual harassment systems
• Employee training
• Accident history
• Community complaints

For manufacturing companies, workplace safety is often one of the most important areas.

The review may examine safety training records, accident registers, PPE distribution, fire drills, medical examination records and emergency response procedures.

A company with frequent workplace incidents may face operational, financial and reputational risks.

Governance Due Diligence

Governance due diligence evaluates how responsibly the company is managed.

It may examine board oversight, internal policies, regulatory compliance and business ethics.

Typical areas include:

• Board structure
• Code of conduct
• Anti-bribery and anti-corruption policies
• Whistleblower mechanism
• Conflict-of-interest controls
• Data privacy
• Risk management
• Regulatory compliance
• Related-party transactions
• Grievance handling systems

The existence of policies alone is not enough.

An ESG review should also determine whether those policies are actually implemented.

For example, a company may have a whistleblower policy on paper but no mechanism for employees to report concerns confidentially.

ESG Due Diligence Process in India

A structured ESG due diligence process can help companies identify risks efficiently.

Step 1: Define the Scope

The first step is determining what will be reviewed.

The scope may cover a single factory, multiple manufacturing locations or the entire organization.

The review should also define the applicable reporting period.

Step 2: Understand the Business

The reviewer needs to understand the company's sector, operations, products, locations and regulatory exposure.

Environmental risks for a chemical factory will be very different from those of an IT services company.

Step 3: Request Documents

A detailed document checklist is normally shared with the company.

Departments such as legal, HR, EHS, finance, procurement and administration may all need to provide information.

Step 4: Review Regulatory Compliance

Environmental approvals, labour registrations and other applicable statutory documents are checked.

The review should identify whether permissions are valid and whether their conditions are being followed.

Step 5: Review ESG Data

The due diligence process may evaluate data relating to:

• Electricity consumption
• Fuel usage
• Greenhouse gas emissions
• Water consumption
• Waste generation
• Employee numbers
• Workplace accidents
• Training
• Grievances

The numbers should ideally be supported by source documents.

Step 6: Conduct Site Assessment

For manufacturing and industrial businesses, a site visit can provide important information that cannot always be identified from documents.

The reviewer may inspect waste storage areas, pollution-control equipment, occupational safety arrangements, chemical storage and emergency systems.

Step 7: Identify Risks

Risks are then categorized depending on their seriousness.

Some issues may be relatively minor documentation gaps.

Others may represent significant legal or financial exposure.

Step 8: Prepare Corrective Action Plan

A useful ESG due diligence exercise should not simply identify problems.

It should also recommend how those risks can be corrected.

The final report may include immediate actions, medium-term improvements and longer-term ESG priorities.

Important Documents for ESG Due Diligence

The exact documents depend on the industry, but companies should generally keep key ESG records organized.

Environmental Documents

These may include environmental approvals, pollution monitoring reports, waste records, water consumption data, energy bills and environmental returns.

Documents relating to EPR, hazardous waste, e-waste, plastic waste, battery waste or used oil may also be relevant depending on the company's activities.

Employee and Social Documents

Important records may include:

• Employee master data
• Payroll records
• Attendance
• Contract labour details
• Safety training records
• Accident records
• Medical examination records
• POSH documentation
• Employee grievance records

Governance Documents

These may include company policies, board documents, risk registers, compliance records and internal audit reports.

ESG Due Diligence Compliance Checklist

Before an ESG review, businesses can conduct a basic internal check.

Environmental

Check whether all environmental licences are valid.

Verify whether pollution-control systems are operating properly.

Confirm whether waste is being sent only to authorized recyclers or treatment facilities.

Maintain records for electricity, fuel, water and waste.

Social

Verify compliance with applicable labour laws.

Maintain employee and contractor records.

Review workplace safety procedures.

Track accidents and corrective actions.

Ensure grievance mechanisms are functioning.

Governance

Review important corporate policies annually.

Maintain clear approval authority.

Keep compliance calendars updated.

Document internal investigations where required.

Monitor ethical and regulatory risks.

Common ESG Risk Areas in Indian Companies

One common problem is expired environmental approvals.

Industrial units sometimes continue operations while CTO renewals or waste authorizations are pending.

Another major issue is poor waste documentation.

A company may dispose of waste properly but fail to maintain complete manifests or recycler records.

Employee and contractor documentation is another frequent concern.

Many companies maintain detailed records for permanent employees but have weaker systems for contract workers.

Data inconsistency is also common.

For example, electricity consumption disclosed in an ESG report may not match the company's actual electricity bills.

These discrepancies can affect confidence in ESG disclosures.

Greenwashing Risk

Another growing concern is greenwashing.

Greenwashing happens when a business makes environmental or sustainability claims that cannot be properly supported.

Statements such as "100% sustainable", "carbon neutral" or "zero waste" should be backed by clear methodologies and evidence.

During ESG due diligence, unsupported environmental claims may become a reputational risk.

Companies should therefore communicate sustainability achievements carefully and maintain proper supporting documents.

ESG Due Diligence During Mergers and Acquisitions

ESG due diligence can be particularly important before acquiring a manufacturing or industrial company.

Suppose an investor acquires a factory and later discovers major soil contamination, environmental penalties or unresolved labour disputes.

The cost of addressing those problems may eventually fall on the new owner.

Identifying such risks before closing the transaction allows investors to make better-informed decisions.

The findings may influence transaction documentation, warranties, indemnities, corrective action commitments or post-acquisition investment planning.

Benefits of ESG Due Diligence

A strong ESG due diligence process helps businesses understand risks before they become serious problems.

It can improve regulatory compliance, strengthen internal systems and increase transparency.

For companies seeking investment, organized ESG records may also make the due diligence process smoother.

Other benefits can include:

• Better risk identification
• Improved investor confidence
• Stronger supply-chain readiness
• Reduced regulatory exposure
• Better environmental management
• Improved workplace safety
• Stronger governance systems

ESG due diligence can therefore be valuable even when there is no immediate transaction.

Best Practices for ESG Due Diligence Readiness

Companies should avoid preparing ESG documentation only when an investor suddenly requests it.

Instead, important records should be maintained throughout the year.

Environmental approvals should be tracked through a compliance calendar.

Energy, water and waste data should ideally be recorded monthly.

Employee and safety information should also be maintained regularly.

Businesses should conduct periodic internal ESG reviews and close identified gaps before an external review takes place.

This reduces the risk of surprises during an investment, acquisition or customer audit.

How an ESG Consultant Can Help

ESG due diligence involves multiple departments and different areas of regulation.

An experienced ESG consultant can help businesses organize the entire process.

Consulting support may include:

• ESG due diligence assessment
• Environmental compliance audit
• BRSR readiness assessment
• ESG data verification
• ESG risk identification
• ESG document checklist
• Sustainability policy development
• Carbon accounting
• Compliance gap assessment
• Corrective action roadmap

For manufacturing companies, consultants can also help review environmental permissions such as CTE, CTO, waste authorizations and EPR compliance.

This allows ESG due diligence to be connected with the company's actual regulatory obligations.

Conclusion

ESG due diligence is becoming an important part of investment, financing, supply-chain management and corporate risk assessment in India.

Companies should not view ESG due diligence simply as another documentation exercise.

A proper review can reveal regulatory gaps, environmental liabilities, workplace risks and governance weaknesses before they create major financial or reputational problems.

Businesses that maintain organized ESG records, regularly review their compliance status and take corrective actions early are generally better prepared for investors, customers and future reporting requirements.

Green Permits supports Indian companies with ESG due diligence, ESG audits, BRSR readiness, environmental compliance assessment, sustainability reporting, carbon accounting and ESG advisory services.

For professional support with ESG due diligence and compliance:

Website: https://www.greenpermits.in

Phone: +91 78350 06182

Email: wecare@greenpermits.in