ABSTRACT

The paper critically examines the evolution of Environmental, Social, and Governance (ESG) factors in Indian private equity (PE) transactions, tracing the shift from voluntary corporate social responsibility (CSR) obligations to a deal-critical compliance regime. It analyses how growing pressure from limited partners (LPs), new regulatory frameworks like SEBI’s Business Responsibility and Sustainability Reporting (BRSR), and a recognition of long-term value creation have compelled PE investors to integrate ESG across due diligence, post-investment monitoring, and deal structuring. The article further explores emerging strategies such as the use of carbon credits for monetization and strategic divestitures for risk mitigation, situating these practices within the broader legal and economic context of India. By drawing on industry reports and regulatory developments, the paper argues that a harmonized, enforceable ESG framework is essential for nurturing a sustainable investment ecosystem that balances financial returns with responsible business practices.

Keywords: Private Equity, Mergers & Acquisitions, Environmental Social and Governance, Corporate Social Responsibility, Sustainability Reporting, Carbon Credits, Taxation, International Trade Law

I.INTRODUCTION

Private equity (PE) has historically been driven by the singular objective of maximizing financial returns, with reforms in governance and operations primarily geared toward enhancing exit valuations. In recent years, however, Environmental, Social, and Governance (ESG) factors have shifted from being voluntary or reputational considerations to becoming decisive elements in investment decisions. This transformation is propelled by three interrelated forces: first, growing pressure from limited partners (LPs) who are signatories to global frameworks such as the United Nations Principles for Responsible Investment (UNPRI)^[1]; second, regulatory developments in India, such as the Securities and Exchange Board of India’s (SEBI) Business Responsibility and Sustainability Reporting (BRSR) framework; and third, the recognition that ESG-compliant companies demonstrate greater resilience and long-term value creation.

In the Indian market, ESG has moved from being a “check-the-box” compliance exercise to a central feature of PE transactions. As Bain & Company’s India Private Equity Report 2024 notes, LPs are increasingly imposing ESG obligations in investment agreements, reshaping due diligence, post investment monitoring, and deal structuring strategies.^[2] This paper explores how ESG considerations influence PE transactions in India across three critical stages—(i) due diligence, (ii) post-investment compliance, and (iii) deal structuring—while situating these developments in the broader shift from corporate social responsibility (CSR) obligations under Indian law to a more integrated ESG regime. We also examine emerging trends in carbon markets and the use of strategic divestitures as tools for ESG compliance, underscoring their growing importance in shaping the future of PE in India. The goal is to provide a comprehensive, forward-looking analysis that not only documents the current state of affairs but also anticipates the future direction of corporate governance and private equity law in India. This is a critical area for aspiring M&A and PE lawyers, as it requires a blend of legal precision, financial acumen, and a deep understanding of sustainability imperatives.

[1]U.N. Principles for Responsible Inv., Principles for Responsible Investment, https://www.unpri.org/about–us/what–are–theprinciples–for–responsible–investment(last visited Sept. 3, 2025)..

[2]Bain & Co., INDIA PRIVATE EQUITY REPORT 2024 (2024), https://www.bain.com/insights/india–private–equityreport–2024.