[Hemavathi Shekhar is the Founder and Director, Enact Earth Foundation and Gunjan Soni is an Assistant Professor, School of Law, Mahindra University and Co-Lead, Indian Front, World’s Youth for Climate Justice.
This post is part of the IndiaCorpLaw Blog Symposium on ‘Corporate Law and Climate Change: Indian and Comparative Perspectives’.]
On 23 July 2025, the International Court of Justice (ICJ) delivered a landmark advisory opinion clarifying the obligations of States under international law in relation to climate change (AO). Among other things, the court clarified that all States have the customary international law (CIL) duty to prevent significant harm to the climate system [para 134, AO] and any breach of this duty attracts legal consequences [para 409, AO]. The standard of conduct to fulfil this duty is the exercise of stringent due diligence by States [para 138, AO]. The court additionally clarified that the customary international law obligation to prevent harm to the climate system also includes the obligation of States to regulate the conduct of such private actors [para 428, AO].
This blog post focuses on this specific obligation. For India, a country that follows a dualist approach to international law, this obligation cannot be self-executing. It must be absorbed into domestic law by way of legislative enactment or judicial interpretation of the existing laws. The core argument of this blog is that Indian corporate laws offer a credible pathway for operationalising this obligation. However, significant legal and institutional challenges stand in the way of its implementation. Ultimately, a legislative amendment remains one of the most durable ways to ensure compliance.
States’ CIL Duty to Regulate the Conduct of their Private Actors
The ICJ highlighted that the “risk of significant harm may … be present in situations where [the] harm … is caused by the cumulative effect of different acts undertaken by … private actors” within the jurisdiction and control of a State [para 276, AO]. If a State fails to regulate the conduct of its private actors, it also fails to exercise its regulatory due diligence and such failure attributes State Responsibility [para 428, AO].
The due diligence standard is applied in cases where States have to fulfil an obligation of conduct, which is an obligation “to endeavour to reach the result set out in the obligation”. In the context of climate change the standard to measure the conduct is that of stringent due diligence which means that States must do their utmost, by taking appropriate steps, “to ensure that private persons will not cause such harm” to the climate system.
The ICJ also clarified what this due diligence entails: States must take appropriate measures such as putting in place a national legislation, administrative procedures, and enforcement mechanisms to regulate private actors’ conduct. The court expressly noted that “a State may be responsible where … it has failed to exercise due diligence by not taking the necessary regulatory and legislative measures to limit the quantity of emissions caused by private actors under its jurisdiction” [para 428, AO]. Therefore, if a State lacks climate legislation that fails to regulate the conduct of private actors, or maintains a legislation inconsistent with a 1.5°C pathway and the due diligence obligation, it may be in violation of its obligations under international law.
India follows a dualist approach, where municipal law must be changed to accommodate international law. This can happen by amending the existing legislative framework or reading current laws expansively and purposively in light of the international obligations. In the subsequent sections, both pathways are analysed in the context of Companies Act, 2013, to understand how the regulatory due diligence obligation can be operationalised within India.
Expansive Interpretation of Section 166 of Companies Act, 2013
One of the most promising vehicles to operationalise the regulatory due diligence obligation is section 166 of the Companies Act, 2013. This provision codifies the duties of directors in India. Two important elements deserve close attention in this regard.
First, section 166(2) provides that a director shall act in good faith “in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.” This provision when expansively interpreted in the light of ICJ AO, can carry a meaningful climate governance obligation, where the legislature made a deliberate choice to name ‘environment’ as an explicit stakeholder. This provision adopts a stakeholder theory model, one where environmental protection sits alongside the interests of shareholders, employees and the community. Additionally, the architecture of section 166(2) rejects the shareholder primacy norm that has long dominated corporate governance thinking. By mentioning various stakeholders, the legislature signalled that directors must balance a range of interests and that no single beneficiary may routinely override the others. Post ICJ AO, where climate harm is judicially recognised as legally cognisable and internationally wrongful, the board decision to prioritise short term profits over cost of causing climate harm is difficult to be justified as a valid exercise of directorial discretion.
Second, section 166(3) requires a director to exercise duties with “due and reasonable care, skill and diligence.” This is the due diligence standard, the same standard the ICJ placed at the heart of state obligation. The ICJ held that States must take “all necessary measures” and exercise “due diligence” to prevent climate harm. Transposed to the board level, application of this duty requires an objective, fact-based assessment of whether a director has adequately considered material risks facing the company. The ICJ’s recognition of climate harm as foreseeable and legally cognisable strengthens the basis for treating climate risk as a matter falling within directors’ existing duties of care and diligence, but whether there is a breach under section 166(3) would depend on the circumstances including the nature and materiality of the risk and the information reasonably available to the directors.
Although an expansive interpretation of section 166 offers one pathway to operationalise the regulatory due diligence obligation, it is still dependent on judicial intervention, including through actions brought by stakeholders against directors. While the Supreme Court’s decision in M.K. Ranjitsinh v. Union of India reflects an emerging judicial recognition of the legal significance of climate change and the stakeholder-oriented character of section 166, it did not explore in detail how these principles apply to director duties in the context of climate risk. Considering the limited judicial development in the interpretation of these duties and the practical challenges of claims from stakeholders, legislative change becomes a more effective and reliable pathway to regulate companies’ conduct.
The Need to Amend the Companies Act, 2013
The Tenth Report of the Standing Committee on Finance (SCF), while acknowledging the progress achieved through the National Guidelines on Responsible Business Conduct (NGRBC), the Business Responsibility and Sustainability Reporting (BRSR) framework, recognised that disclosure-based regulation alone is inadequate to address the governance challenges posed by climate change and sustainability risks. Accordingly, it recommended structural reforms including the establishment of a dedicated Environmental, Social, and Governance (ESG) oversight body within the Ministry of Corporate Affairs, the creation of board-level ESG committees, and, most significantly, an amendment to the Companies Act, 2013 to expressly incorporate ESG objectives within the fiduciary duties of directors.
The Government’s response mentioned in the Twenty-First Report, however, reflects a more cautious regulatory approach. Rather than endorsing legislative reform, it maintained that ESG principles are already embedded within the existing framework of the Companies Act through provisions relating to directors’ duties, Corporate Social Responsibility, energy conservation, board diversity, and disclosure obligations. On this basis, the Government rejected the committee’s proposals with a reasoning that the existing disclosure-based framework, supported by statutory penalties, adequately balances regulatory oversight with the objective of ease of doing business.
Nevertheless, the Committee reiterated that dispersed disclosure obligations cannot substitute for an explicit governance framework imposing board-level responsibility for ESG oversight. Of particular importance is the Committee’s continued recommendation that ESG objectives be expressly incorporated into directors’ fiduciary duties under the Companies Act, 2013. Although Standing Committee reports do not possess binding legal force, they constitute an important aid in discerning legislative intent and have frequently been relied upon by Indian courts as persuasive material in statutory interpretation. The Committee’s repeated emphasis on amending the Act showcases that the existing legal framework is inadequate to address contemporary sustainability and climate-related risks.
Challenges to the Implementation of India’s Regulatory Due Diligence Obligation
Despite the above arguments, there remain structural implementation challenges to the operationalisation of regulatory due diligence obligation through the Companies Act, 2013. Notwithstanding, the stakeholder-oriented language of section 166(2) of the Companies Act, 2013, Indian corporate governance continues to be shaped by shareholder primacy. Directors’ fiduciary duties are predominantly understood through the lens of protecting shareholder value and financial performance, with environmental considerations often treated as secondary. The limited judicial interpretation and development in recognising climate governance as an integral aspect of directors’ duties creates uncertainty regarding the extent to which the existing duties require them to account for climate-related risks and action.
Although section 166(3) imposes duties of care, skill and diligence, it remains unclear whether these extend to foreseeable climate-related financial and operational risks. While climate-related disclosure is mandated for public listed companies under SEBI (LODR) Regulations, climate governance remains a voluntary ESG consideration for many other companies. Additionally, this sub section adopts an objective standard under which directors will have to sufficiently inform themselves of the company’s business and associated risks and engage with outside experts, when necessary. The uncertainty lies in how these requirements apply to material climate-related risks and extent of inquiry and oversight expected of directors in addressing them.
Existing regulations (under corporate and securities laws) largely emphasise disclosure and transparency requirements rather than substantive climate governance responsibilities. As a result, companies may comply with reporting requirements while failing to integrate climate considerations into strategic decision-making, limiting the effectiveness of the current regulatory framework.
Way Forward
The ICJ AO has categorically clarified that States have the obligation to regulate their private actors, as a matter of legal requirement. Fulfilment of this obligation demands more than disclosure frameworks. There is a need for active governance of climate conduct of private actors. In order to make this a reality, two steps become necessary.
First, Indian courts must purposively interpret section 166 in light of India’s international climate obligations. The section already makes explicit reference to ‘protection of environment’, adopts a stakeholder model and incorporates the due diligence standard. This necessitates an expansive and purposive interpretation to impose climate governance obligations on directors. Indian courts can now rely on the ICJ AO to further this expansive and purposive interpretation of section 166, given their history of relying on international law as well as on ICJ’s decisions to fill the legislative void.
Second, the government should implement SCF’s recommendations. While section 166 already adopts a broad approach, explicit articulation of board-level ESG responsibilities would translate this into clearer governance responsibilities. It is important to distinguish between the disclosure provisions which ask companies to record what they have done and governance-related provisions which regulate the conduct of companies. The regulatory due diligence obligation requires a State to ensure that companies take climate action and are not just required to make disclosures. For India, this would mean that it strengthens the domestic legal framework which also is a step towards compliance with India’s international obligations to regulate private actors and prevent significant climate harm.
Overall, the purposive interpretation by the judiciary in the interim and active implementation of the SCF’s recommendations by the legislature and executive, will act as a minimum necessary response to the operationalisation of India’s due diligence obligation to regulate the conduct of its private actors to prevent significant harm to the climate system.
– Hemavathi Shekhar & Gunjan Soni