Guardians of the Green Justice: Courts and Corporate Accountability

Environmental compliance is an enforceable obligation on corporations to hold them responsible for environmental damage costs. This accountability can be ensured through promoting Corporate Social Responsibility (CSR), which holds corporations responsible for social and environmental issues rather than merely seeking profit maximisation. CSR also has moral and ethical roots; hence, it is vital for corporations not to disregard their social responsibilities while pursuing their economic goals. The judiciary actively holds companies accountable for their environmental impact, making CSR more than just good PR. This post aims to examine judicial enforcement of environmental regulation with the limelight on the specific responsibilities of corporations, along with enforcing environmental regulations and balancing the need for development and sustainability.

CSR has largely remained voluntary and relied on self-regulation through codes of conduct with the decision to comply with the codes of conduct.  The lack of direction and voluntarism has led corporates to randomly pick responsibilities rather than target ‘community’ needs. For instance, the excessive drawing of groundwater by the Coco-Cola factory in the Mehdiganj region near Varanasi in 2014, leading to its shut-down, is a case of self-regulation by the company, which claimed that they used water “very responsibly and judiciously”, but it was proven otherwise by the Uttar Pradesh Pollution Control Board and the Central Ground Water Authority. Sometimes, stakeholders may pressurise for corporate responsibility even when an issue falls outside the corporation's purview. While corporations may rightly claim they can’t be held responsible, ignoring these demands may be costly. Although there is no fixed definition for CSR, the World Bank’s working definition of corporate social responsibility is:

“Corporate social responsibility is the commitment of business to contribute to sustainable economic development—working with employees, their families, the local community and society at large to improve the quality of life, in ways that are both good for business and good for development.”

The statutory authority governing CSR in India is Section 135 of The Companies Act, 2013. Courts also play a vital role in determining who falls within the ambit of CSR under Section 135. For example, in the case Parikh Enterprises Private Ltd., In Re,  the NCLT clarified that any company meeting the profit threshold falls under the ambit of Section 135, regardless of intent. The company was penalized for not adhering to CSR provisions despite claiming a lack of awareness. However, CSR's broad scope doesn't specifically prioritize environmental concerns, hence the need for Corporate Environmental Responsibility.

The Government has imposed separate obligations on corporations to protect the environment through what is known as Corporate Environment Responsibility (CER). The Ministry of Environment, Forest and Climate Change (MoEFCC), in their 2018 Memorandum, attempted to differentiate CSR and CER. It stated that CSR comes into effect only when companies make certain net profits, and there are instances, say, when a company does not meet the required net profits, then the rules pertaining to CSR do not apply as the company is yet to make any net profit. Unlike CSR, CER specifically focuses on a company's environmental impact, including initiatives like pollution control, sustainable resource management, and biodiversity conservation. The MoEFCC, through this memorandum, mandates that companies allocate funds specifically for CER initiatives. This involves creating an Environment Management Plan (EMP), outlining the company's environmental goals, strategies, and actions to mitigate its impact, including measures like public consultation and social impact assessment.

A Balance of Responsibilities: The Judiciary’s Role

Constant monitoring and government tabs over the fulfilment of CSR is bound to agitate corporations. For instance, the office memorandum of 2018  that mandated separate funds for CER was challenged in CREDAI NCR v. Union of India before the Delhi High Court as the corporation was unhappy with such CER regulations. This case, however, led the Ministry to issue a new memorandum in 2020, shifting the focus from allocating funds for CER to emphasizing environmental commitments and imposing specific conditions for environmental protection.  Nevertheless, this is a feeling common among corporations who would prefer minimal “social giving” and prefer self-growth, thus leading them to protest against the government for intervention through such regulations. In such scenarios, courts play a mediatory role between the government and private entities in order to bring about a balance in ensuring the government’s goal of placing environmental responsibility on corporations and corporates' desire for autonomy in the conduct of their businesses. In Charan Singh Meena Vs. Union of India, Sanjay Yadav J noted that “the main thrust and spirit of the law is not to monitor but to generate a conducive environment for enabling the corporates to conduct themselves in a socially responsible manner while contributing towards human development goals of the country.” Thus, judicial interference in such disputes brings forth a nuanced and effective approach to regulating CSR, where both corporations and the government work together for social good.

Environmental Justice: At the Courts So Far

As a guardian of the law, the judiciary also becomes the guardian of the environment. It plays a major role in scrutinizing decisions related to environmental law and policies, especially while holding corporations accountable for their environmental impact. This was exemplified in M. C. Mehta v Union of India, which established the absolute liability principle and ruled that complete liability would be placed on companies dealing with inherently dangerous or hazardous materials for any sort of damage they may cause. The placement of such “absoluteness” of responsibility on corporations ensures they are not negligent towards the environment, making it one of the strongest principles for protecting the environment today.

Other foundational principles of environmental law such as the ‘precautionary principle’, ‘polluter pays principle’ or ‘the public trust doctrine’ ensure the safeguarding of the environment. However, it is the judiciary that truly puts these principles into effect. For instance, in the case of Indian Council for Enviro- Legal Action v Union of India, the apex court upheld the polluter pays principle using  Section 3 of the Environment Protection Act that empowers the government to “take every such step as it deems necessary or reasonable for safeguarding and enhancing the environment.” The company was held liable for polluting a village in Rajasthan through the release of 'H' acid. Similarly, in Vellore Citizens Forum case, the court sought to put an end to the large-scale pollution caused by the tanneries in Tamil Nadu. The court went on to refer to international declarations (like Stockholm Declaration and Rio Declaration) to highlight that the principles of environmental law are essential attributes of ‘sustainable development’ and are to be read into the municipal law. This case was a victory for the locals, who had been suffering from the severe pollution caused by the tanneries.

At the Courts: Development vs Environment

With rapid urbanization due to growing cities being built around industries and corporations, the natural environment gets lost in the bustling cities or sometimes is intentionally done away with to meet the growing demands of the surging population. The courts recognised this in the case of Sachidananda Pandey vs State Of West Bengal & Ors, which highlighted the extent to which the Supreme Court can intervene in government decisions affecting ecology. Here, the government sought to lease land from the Calcutta Zoo to construct the 5-star Taj Hotel. The court noted that the city had grown in such a fashion that the zoo had virtually become the city centre, and there was hardly any scope for its expansion. This highlighted how growing cities had the tendency to engulf the natural habitat of multiple species, which in this case negatively impacted the zoo’s ecology. In this case, the power of judicial review was extended to all government decisions impacting ecology under Articles 48A and 51A(g). In State Of Tamil Nadu vs Hind Stone Etc., the court highlighted the importance of environmental sustainability, noting that there is a duty on every generation to conserve and protect natural resources. Therefore, by upholding environmental laws and promoting sustainability, the judiciary plays the protector of the environment for a sustainable present and future.

Conclusion

 As the world continues to run in the marathon for progress and development, the larger potholes being made, like the depleting resources, pollution of land, water and air, and extreme weather changes, represent the forgotten side effects that come with the race. Side effects include environmental degradation, rising health concerns because of such degradation, and a bleak future for the people who need to survive on this planet. This places countries like India in a dilemma between pursuing the developmental goals promoting urbanization, industrialization and modernity that corporations tend to run behind, as opposed to the looming issue of climate change that has already begun to affect people's lives with far-reaching consequences ahead into the future.

Therefore, the judiciary's role becomes crucial to ensure that there remains a balance between allowing corporations to work towards development and protecting the environment. A change in the existing system should start from the root level of its implementation and enforcement. For instance, the voluntary nature of CSR that gives corporations the leeway to define what falls under “social responsibility” should be regulated, if not rigidly defined, to place a mandatory obligation of environmental care and protection. Such regulation should not be one that stifles economic growth or development of the nation when placed on all corporations. The judiciary wields the power to bring about the enforcement of such specific regulations on corporations. Considering the large extent of environmental degradation, courts need to go beyond merely imposing fines They should obligate corporations to promote a culture of sustainable practices, holding them accountable for integrating environmental considerations into their business strategies. This assertive approach will ensure that corporations genuinely adopt sustainable practices. The application of environmental principles in courts to hold corporations liable must go beyond merely imposing fines and instead inculcate a culture of sustainable practices in corporations. If protecting the environment today is sidelined, omens of a gloomy future will continue to haunt us. Hence, it is essential to enforce CSR and CER for long-term sustainability, not merely short-term gains, to satisfy developmental goals.

[This post has been authored by Ruchiranana Marripudi, a second-year law student at JGLS]