We Must Move From “Corporate Social Responsibility” to “Corporate Legal Responsibility”: Justice BR Gavai

Hon’ble Mr Justice BR Gavai represented the Supreme Court of India in the Commonwealth Magistrates and Judges Association Conference at Cardiff, United Kingdom.

The Hon’ble Chief Justice of India has nominated Mr Justice B.R. Gavai to represent Indian Judiciary in this Conference hosted by the Judiciary of England & Wales at Cardiff, United Kingdom, from 10^th -14^th September 2023.

Amongst other panellists speaking in the session are Chief Justice Ivor Achie, Chief Justice of Trinidad and Tobago; Hon’ble Justice Awa Bah, Justice of the Supreme Court of Gambia; and Professor Sir Ross Cranston, FBA, former Judge of High Court of England & Wales. The session was chaired by Justice Robin Knowles CBE, the Judge of the High Court of England & Wales.

Today, Justice Gavai delivered his speech on the topic: We must move from “Corporate Social Responsibility” to “Corporate Legal Responsibility”

Justice Gavai, while addressing the session, has said: “Corporate Social Responsibility is a concept where businesses are mandated to integrate social and environmental concerns in their business activities. However, Corporate Social Responsibility in all cases works on self-regulation and allows flexibility to the corporations to fulfil their social obligations. It has mainly been considered as a moral and normative responsibility that corporates can voluntarily pursue. But, “in the event of conflict or serious harm to the environment, animals or people, where corporate irresponsibility is occurring, it is manifestly illogical to leave to the corporation the task of self-regulating.” This shows that Corporate Social Responsibility as a concept lacks legal accountability for non-performance of social obligations by companies. Therefore, there should be a shift in focus towards legally mandated accountability.”

Furthermore, Justice Gavai emphasised the significant role played by Indian Judiciary in shaping the legal landscape surrounding corporate responsibility on climate change in India through catena of judgement.

The theme for the Conference was “Open Justice Today” and marked the celebration of the 25th anniversary of the Latimer House Principles. The Conference was in collaboration with the standing International Forum of Commercial Courts.

Read The Full Text of Speech here

Panel Session: Corporate Legal Responsibility and Climate Change

CMJA Annual Conference 2023

Hon’ble Justice Bhushan R. Gavai, Judge Supreme Court of India

Introductory Thoughts

Climate change is one of the most pressing global challenges of our times, requiring collective action and a comprehensive legal framework to address its impacts. Governments, transnational organisations, and regulatory bodies have established commitments, obligations, and laws to promote corporate responsibility in mitigating and adapting to climate change. However, the challenges of climate change remain. Action must come from governments, cities, regions, businesses and investors as well as transnational entities.

Climate Change and Corporate Responsibility

Climate action is mandated on business entities in order to make them accountable for their actions that may impact climate adversely. This is done as corporate and transnational entities today wield significant power and influence on the global economy as well as on a domestic level. Therefore, they have the power as well as moral responsibility to contribute towards climate action and help to fulfil the mandate of international and national obligations. This is where the concept of corporate responsibility comes into picture.

Corporate Social Responsibility is a concept where businesses are mandated to integrate social and environmental concerns in their business activities. However, Corporate Social Responsibility in all cases works on self-regulation and allows flexibility to the corporations to fulfil their social obligations. It has mainly been considered as a moral and normative responsibility that corporates can voluntarily pursue. But, “in the event of conflict or serious harm to the environment, animals or people, where corporate irresponsibility is occurring, it is manifestly illogical to leave to the corporation the task of self-regulating.” This shows that Corporate Social Responsibility as a concept lacks legal accountability for non-performance of social obligations by companies. Therefore, there should be a shift in focus towards legally mandated accountability.

A report prepared by Corporate Climate Responsibility Monitor (an NGO), states that the majority of the large transnational corporations have failed to reduce emissions as mandated by the Paris Agreement (2015) and their commitments towards net-zero emissions. The report is based on tracking and disclosure of emissions, setting emission reduction targets, reducing own emissions and taking responsibility for unabated emissions through climate contributions or offsetting. The report indicates that “regulators should not rely on consumer and shareholder pressure to drive corporate action; companies must be subject to intense scrutiny to confirm whether their pledges and claims are credible and should be made accountable in the case that they are not.”

Thus, we must move from “Corporate Social Responsibility” to “Corporate Legal Responsibility”. In this regard, we need to reiterate our commitment to climate action and the concrete mandatory steps to be taken even in the case of corporations.

Global Framework

It is imperative to refer to the Stockholm Declaration of 1972, where it was acknowledged in its preamble that environmental action demands “the acceptance of responsibility by citizens and communities and by enterprises and institutions at every level, all sharing equitably in common efforts. the acceptance of responsibility by citizens and communities and by enterprises and institutions at every level, all sharing equitably in common efforts.”

The role of private companies in environmental protection was more extensively discussed at the UN Conference on Environment and Development in Rio de Janeiro in 1992. An action plan was accepted in the form of Agenda 21. The website of the United Nations defines Agenda 21 as “a daring program of action calling for new strategies to invest in the future to achieve overall sustainable development in the 21st century”. Chapter 30 of the Agenda 21 specifically dedicated a whole chapter to the role and responsibility of business and industry. As it has been noted by Elisa Morgera, who is a professor of global environmental law in Glasgow, Agenda 21 was “considered as one of the most important contributions of the blueprint: it provided an unprecedented framework for corporate environmental responsibility and acknowledged the importance of governments in encouraging improved corporate environmental management.”

Agenda 21 suggested that the “industry should incorporate cleaner production policies in its operations and investments, taking also into account its influence on suppliers and consumers”. It was further suggested that “industry and business associations should encourage individual companies to undertake programmes for improved environmental awareness and responsibility at all levels to make these enterprises dedicated to the task of improving environmental performance based on internationally accepted management practices.”

Thereafter, the World Summit on Sustainable Development in Johannesburg in 2002 saw a key focus on the role of the private sector. The resolutions accepted in Johannesburg emphasised on enhancing “corporate environmental and social responsibility and accountability”.

Thus, we have an established international framework on corporate legal accountability and climate action. Examples can also be found from the legal mechanisms in the Commonwealth countries. Section 16 of the Kenyan Climate Change Act 2016 mandates climate change duties of the private entities. Thus, the institutional measures by the different countries are significant developments. Let me now share the Indian experience on corporate legal responsibility and climate change.

The Indian Experience on Corporate Legal Responsibility and Climate Change

India has always adopted measures in line with its commitment to tackling climate changes. There are a catena of judgments that have shaped the legal landscape surrounding corporate responsibility on climate change in India. The Supreme Court of India has highlighted the duty of corporations to protect the environment and contribute to the remediation of environmental damage caused by their activities. Various judgments have led to the strengthening of environmental regulations, expanded corporate liability for environmental damage, and increased transparency and public participation in environmental decision-making processes.

In case of environmental damage caused by corporations, the Supreme Court of India has adopted the principles of “polluter pays”, “precautionary principle”, and “sustainable development”. The principle of “Polluters Pays” demands that the financial costs of preventing or remedying damage caused by pollution lies with the undertakings which caused such pollution in the first place. The “Precautionary Principle” mandates action to avert risks that could cause serious and irreversible damage to the environment and human health.

India has also been enacting and updating legislations to bring accountability against corporate entities. The Environmental Impact Assessment (EIA) process under the Environmental Impact Assessment Notification, 2006 is a mandatory step in obtaining environmental clearances. It requires companies to assess and evaluate the potential environmental impact of their proposed projects thoroughly.

Furthermore, the Companies Act, 2013 introduced a significant provision, Section 135 , as part of its corporate social responsibility mandate. This includes initiatives related to environmental sustainability and climate change mitigation. Corporations are now required to allocate a portion of their profits towards activities that benefit society and the environment, driving investments in projects aimed at addressing climate change. Section 166(2) of the Companies Act emphasises that the directors must act in good faith, not only in the best interests of the company, but also for the protection of the environment.

Conclusion

Collaborations and partnerships are vital in addressing climate change effectively. Corporations are encouraged to work with government agencies, non-profit organisations, and other stakeholders to effectively deal with the menace of climate change. By participating in collaborative initiatives, sharing best practices, and setting ambitious climate targets, corporations can contribute to the overall effort to combat climate change.

There is a dire need for states to take steps to make corporations more accountable through legal sanctions. Legal and moral responsibilities should be taken together as a bundle of obligations for businesses to effectively discharge their functions with accountability inevitably linked to moral responsibility.