Efforts towards mitigating the impact of climate change and the imperative for sustainable energy solutions have prompted shifts in energy paradigms globally. While governments enact policies and subsidies to facilitate the transition to renewable energy, the pivotal role of corporations in achieving a just and effective energy transition cannot be overstated. In this regard, examining the onus of corporate responsibility in shaping energy transition and mitigating climate change, this blog examine examines the role of ‘corporate law tools’ in incentivizing and compelling companies towards energy reinvestment.

Highlighting recent developments underscoring the significance of considering climate risks in corporate decision-making processes, this blog discusses the role and obligations of directors in acting in the best interest of a company, its shareholders and the environment. In addition to shareholder activism which has emerged effective in leveraging engagement and resolutions in influencing corporate behaviour towards energy transition.

In discussing ‘corporate law tools’, corporate disclosures such as the Business Responsibility and Sustainability Report (BRSR) and disclosure requirements encompassing environmental, social, and governance aspects (ESG) are examined. Moreover, the blog also discusses the importance of standardized reporting frameworks like the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD) in enhancing transparency and comparability.


The understanding and usage of renewable energy sources have increased significantly in recent years. This rise in usage stems from the ever-increasing climate change issues and rising fossil fuel prices, which is not only a concern for national economies.

To strategically tackle the issues of climate change, governments around the world have implemented various mechanisms in terms of policy and economic support. In the US, federal policies such as the Investment Tax Credits (ITC) and the tradable Renewable Energy Certificates (RECs) have been facilitating financial support for energy transition. Though reported that these subsidies in the wind and solar facilities are being gradually reduced, it is indicated that the developments in energy transition will be able to offset the increased cost by the reductions in the cost of installation of solar and wind infrastructure, besides the technological improvements boosting output.

Besides government policy through subsidies aiding green energy production in wind and air, the generation of power from renewables is only part of the energy transition. The mass introduction of electric transportation infrastructure, coupled with greater usage of technologies to improve energy efficiency are also aiding the current energy transition efforts. For example in India, subsidies for petrol and diesel were removed in 2010 and subsidies for electric vehicles (EVs) were introduced in 2019. Additionally, the average cost of lithium-ion batteries, the primary type for EVs, has significantly decreased due to manufacturing economies of scale, technological advancements, and the growing shift toward electrification for power and transportation.

Hence, the role of key stakeholders is critical to a just energy transition which includes efforts to influence investors to re-think their association with fossil fuel companies (i.e. divesting in such company’s shares) and encourage companies to inculcate climate change risks in their internal decision-making processes. Acknowledging the necessity of this transition, many listed companies, particularly those in carbon and energy-intensive sectors, are being asked to prepare detailed climate transition action plans, showing how they plan to transition to a net zero emissions company by 2050 or sooner.


Governments should encourage private governance initiatives. Companies have the ability to impact climate change by structuring their decisions to produce, invest and use their influence positively to establish low carbon technologies in their respective markets and consequently drive their supply chains into adopting sustainability, and most importantly finance climate adaptation.

The corporations involved in the energy market are largely profit-driven – the process and profit, starts from the extraction till the transportation, and thus, such corporations need hefty investments to structure and operate new projects. As per estimates, India’s average annual energy transition outlay is estimated at 10.8% of the country’s total GDP. This is a significant number, for a country which has a combined outlay for Education, Health, Water and Housing that falls short of 10%. As per estimates, India must invest $600 billion annually, till 2050, for energy transition alone. Besides government investments and subsidies in energy transition, the numbers are far more modest for oil and gas companies, the capital spending on low-emissions alternatives such as clean electricity, clean fuels and carbon capture technologies was less than 5 percent of their upstream spending, as per 2022 numbers for many of these companies. Though up from 1 percent from 2019, the number is still far too little, and there is a need to bolster these modest numbers.

Besides many fossil fuel producers made record profits last year because of higher fuel prices, but the majority of this cash flow has gone to dividends, share buybacks and debt repayment – rather than back into traditional supply and capital investments in structuring and operating new energy transition projects.

Leveraging Corporate Law Tools Towards Energy Transition

But despite these efforts, investment in energy globally is heavily reliant on fossil fuels. The transition towards a lower carbon economy can be achieved with the coordination of international efforts and national/domestic regulations. At a company level, governance tools and mechanisms would help to address energy transition needs. Therefore, this blog-post provides an analysis of tools under corporate law that can help alter the existing pattern of energy investment and impel energy re-investment by companies and large-scale investors.

Energy reinvestment is the conscious effort to refine the internal reallocation of assets and urge external investors to relocate their investments from fossil fuel companies to companies innovating in clean energy.

With climate change being addressed as a material financial risk for the companies, energy transition should no longer be considered as a voluntary activity but a matter of necessity. It is important to understand the role companies can play in governing and developing the scope of energy transition and how a company’s behaviour towards climate change and clean energy is weighed by corporate law tools such as disclosures, directors’ duties and shareholder actions and resolutions.

Investors, regulators, and other stakeholders now are more aware and are seeking greater transparency to make informed investments and comparisons of a company’s ability to transition to net zero, their ability to manage climate risks and strategies in order to take advantage of climate-related opportunities. It is now expected that along with other disclosures and reports companies will need to provide investors with credible transition plans if they wish to retain and attract quality, long-term capital.

In India the requirement of companies to report environmental impact and mitigation strategies forms a part of its Corporate Social Responsibility directive as mandated by the Government.

Director Duty

Presently, there is immense political and private sector involvement in addressing climate change risks that has not been seen before. As a result, the legal and regulatory framework of director’ duties is changing.

Under the Companies Act, 2013 (hereinafter “the Act”) a ‘director’ is defined under section 2(34) meaning a director appointed to the Board of a company. Accordingly, the duties of director are elaborated under Section 166 which states the director shall act in good faith and in the best interest of the company, its employees, the shareholders, the community and for the protection of the environment. The Act also states that a director shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgement.

The Supreme Court of India while elaborating on corporate responsibility and directors’ accountability emphasised that directors have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. And recently, in MK Ranjitsinh vs Union of India, concerning the threat posed by overhead power lines to the Great Indian Bustard, the Supreme Court underscored the urgent need for intervention to prevent harm to the endangered bird species. Highlighting the crucial role of corporate social responsibility (CSR) in environmental conservation, the Court emphasized Section 135 of the Companies Act, urging companies to fulfil their CSR obligations. Additionally, the Court drew attention to the substantial funds available under the Compensatory Afforestation Fund Act for conservation initiatives. Notably it was observed by the court that decisions and costs incurred towards the financial interest of the company but damning to the environment may violate the directors’ duties stated under section 166, thereby iterating the obligations bestowed on the directors towards environmental consciousness and stewardship.

In addition to the duties enlisted in the Act and regulations of the Securities and Exchange Board of India (SEBI), the Board and the company’s directors’ need to acknowledge their duty towards exercising reasonable care to identify and manage the potential material climate change risks and to factor them into account while making decisions. By evaluating and analysing the major advancements in energy transition and how these issues affect their own companies, the directors may carry out their duties more effectively. Consequently, the boards could appoint and seek advice from experts especially in companies operating in sectors where a transition is necessary for a long-term sustainability purposes.

Shareholder Resolution

Coupled with the obligations and duties upon directors, shareholder activism and resolutions has the potential to significantly influence private governance in directing energy transition. This is especially true given the growing environmental consciousness for energy reinvestment, which aims to refine internal reallocation of assets and the urging of external investors to relocate their investments from fossil fuel companies to companies innovating in clean energy.

As seen in the broader context of American corporations, which have witnessed a sharp rise in the introduction of politically charged shareholder resolutions aimed at social and environmental issues in recent years, aimed at addressing a wide range of matters, such as the development and reporting of sustainability measures, human rights risk, corporate renewable energy targets, deforestation, and the rights of indigenous people.

In another instance, in 2021, an environmental group namely, Friends of Earth Netherlands, served a court summons, holding that Shell’s significant contributions to climate change constitutes a violation of the duty of care under Dutch Law. The group seeks a ruling that orders Shell to reduce its CO2 emissions by 45% by 2030 (compared to 2010 levels) and make it zero by 2050, in accordance with the Paris Climate Agreement.

In fact, shareholder activism is said to have been sparked by investors’ growing worries about Environmental, Social and Governance (ESG) standards around the world. This has allowed activist shareholders to leverage their rights as shareholders to effect changes either inside or for the company. For instance, Engine No. 1, a small Exxon hedge fund investor, recently succeeded in garnering the support of other institutional investors and appointing three directors to the company’s board in an effort to push Exxon on reducing its carbon footprint.

As a tool of corporate law channelled towards energy transition efforts, shareholder resolutions are harmonious to director duties. As stated earlier, under Section166 of the Act, directors have a duty to act in good faith and in the best interest of a company, its shareholders, the community, and the protection of the environment. Besides a director having a duty towards their shareholders, amongst the directors in the Board, under Section 151, the rights of small shareholders are also taken into account as they appoint a director to the board.

Besides small shareholders being conferred with the power to appoint a director in the Board of Directors of a company, shareholders nevertheless are still able to exercise their rights and powers and have a say in the management of the affairs of a company.

Shareholders in pursuance of Section 100 of the Act, may request the board by writing for an extraordinary general meeting to be convened as prescribed in the given section, wherein, a failure of the board to convene at the EGM within the prescribed period would enable the shareholders themselves to hold and convene the EGM.

Bringing about either ordinary or special resolutions in the EGM, activist shareholders use these opportunities for shareholder resolutions to wield their rights and influence their say in the management of a company. For example, certain matters are reserved under the Act for the approval of shareholders by way of ordinary resolution or special resolution. With matters requiring ordinary resolutions including the appointing of new directors, altering the share capital of a company in the Memorandum, and declaring dividends. On the other hand, special resolutions pertain to the altering of the object clauses in the memorandum of a company, the changing of its registered office, the altering of the Articles of the company and the varying of the rights of special classes of shares to name a few. Additionally, Section 212 of the Act enables the shareholders by passing a special resolution can intimate the Central Government that the affairs of the company are required to be investigated. The Central Government, on receiving such a request, can order the Serious Fraud Investigation Office to investigate the affairs of the company.

As seen in the Exxon example, activist shareholders at Engine No. 1, used opportunities for shareholder resolutions to effect and lobby in the appointment of three new directors in an effort to push Exxon on reducing its carbon footprint.

In addition to the Act, listed companies are bound by various rules issued by the Securities and Exchange Board of India (SEBI). The obligation for certain companies to establish a Stakeholders Relationship Committee is an example of such a rule. Another example is the mandate that listed companies register on the portal known as the SEBI Complaints Redress System (SCORES), which is run by SEBI. Through SCORES, investors and shareholders can file complaints about the company whose shares they own, as well as track the progress of those concerns.

In addition to Exxon, an additional example of this type of scenario concerns the California State Teachers Retirement System, an institutional shareholder in Reliance Industries. Based on recommendations from the proxy advisory firm Glass Lewis, the system first objected to the appointment of Yasir Al-Rumayyan, a governor of the Saudi Arabian Public Investment Fund and the chairman of Aramco, Saudi Arabia’s state-owned fossil fuel corporation, as an independent director on Reliance’s board. Al-Rumayyan is the governor of the Saudi Arabian Public Investment Fund. The Public Investment Fund had a sizable investment in two other Reliance group companies, and Aramco was negotiating to purchase a 20% stake in Reliance’s oil-to-chemical business, according to the PAF, raising the possibility of a conflict of interest. Later, though, the appointment was approved.

In efforts towards energy transition, shareholder resolutions as outcome of shareholder proposals and active requisitioning of extraordinary meetings thereby serve as a formal and public avenue for shareholder activism, ranging from behind-the-scenes negotiations and appeals to the management.

Thereby shareholder resolutions are a form of engagement reliant on continuing shareholding in a company. While this tool may support internal asset divestment decisions by companies, it should be distinguished from decisions by shareholders to divest outright of stocks in fossil fuel companies (capital divestment) and as such relinquish their ownership rights and restrict opportunities for continuing engagement.

Corporate Disclosure

Corporate disclosure, as a tool of corporate law used for the energy transition, offers market participants—investors, creditors, insurers, customers, and suppliers—information to help their interests evaluate both the hazards and possibilities faced by a given company. Such information is especially important given the increasing understanding of the threat posed by climate change to all sectors of the economy.

In enhancing the reporting and disclosure landscape in the country, the Business Responsibility and Sustainability Report (BRSR), was introduced by the Securities and Exchange Board of India (SEBI) through a circular dated 10 May 2021, wherein disclosures are recommended on ESG parameters, compelling organisations to holistically engage with stakeholders and go beyond basic regulatory compliances in terms of business measures and their reporting. As a result, these disclosure requirements effectively provide indirect tools by giving information that sways market participants’ and enterprises’ decisions in favour of energy divestiture or reinvestment.

The BRSR is devised with the intention of having measurable and globally standardised disclosures on ESG criteria to enable comparison across companies, sectors both domestic and internationally. Such a disclosure is in line with global trends where countries have chosen to engage in mandatory corporate disclosures on environmental and climate change issues.

Activist shareholders additionally leverage corporate disclosure tools besides requiring businesses to disclose climate risks, but also to revamp human resource policies and be more disciplined with capital allocation As far as governance goes, the activist shareholders might propose that the company add additional independent directors, reduce the number of directors, restructure management remuneration, improve internal control procedures, and replace the management.

The requirement to disclose is evidence of accountability and transparency. While companies are increasingly addressing climate change challenges, companies should also be prepared to embrace a more extensive approach to climate disclosure. The merits of disclosure include the data analysis required to draft comprehensive climate policies, as well as improving the pricing of emissions in the financial markets. High polluters will also be forced to lower their emissions as a result of these disclosures, either voluntarily or as a result of investor awareness and pressure.

If a business chooses to report disclosures based on their environmental activities, they can resort to different standards and frameworks, such as the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP) or the Task Force on Climate- related Financial Disclosures (TCFD) to name a few. These frameworks cover areas such as energy consumption, emissions, renewable energy resources and financial impacts of climate change.

Under the Companies Act, Section 134(3) requires the Board of Directors to attach statements to the report presented in the general meeting on the conservation of energy and the development and implementation of risk management policy for the company along with identification of the risks involved. Section 94 entitles the shareholders to receive information and documents pertaining to the annual returns and the statutory register pertaining to the register of members and debenture holders.


Companies have a significant impact on how the energy landscape is shaped as governments around the world race for solutions to the tremendous climate problem that confronts the world today. Considering energy resources are essential for each company and even more relevant for those companies that have extraction, production, or distribution as their primary operation, it is urgent that political and private sector institutions adapt towards mitigating the impacts of climate change. Embracing environmental compliance and championing sustainable initiatives aligns not only with legal mandates but also underscores a conscientious stewardship, and a refined approach towards corporate responsibility and environmental conservation.

The success of dealing with energy transitions will depend on the willingness of companies to use a range of corporate law tools to help them to mitigate their impact on climate change and better and channel energy transition and green growth. A collaborative effort on the part of a company’s director undertaking their duty towards understanding and approaching climate change as a material risk to the company, and energy transition as part of the company’s long-term existence, besides adopting disclosure standards such as the required BRSR, is a crucial first. Ultimately, the activities of shareholders offer a valuable support system that enables companies to maintain transparency and make necessary corrections in their pursuit of energy transition and mitigation of climate change.

Authors and Designation:

Pallavi Rajpal holds a B.A. LL. B from Jindal Global Law School (JGLS), Sonepat, and an LLM in Corporate and Commercial Law from Queen Mary University of London. She is currently working as a Lecturer and Assistant Dean for the Blended LLM Program at JGLS.

Joel B Kyndiah is a third-year law student at the National University of Juridical Sciences (NUJS), Kolkata and an Associate Editor at IJPIEL.

Editorial Team:

Managing Editor: Naman Anand
Editor in Chief: Abeer Tiwari and Muskaan Singh
Senior Editor: Kopal Kesarwani
Associate Editor: Joel B Kyndiah
Junior Editor: Nalin Arora

error: Content is protected !!