ESG and Insolvency: Rethinking India’s Bankruptcy Framework for a Sustainable Future

With global economies striving for sustainable growth, the convergence of Environmental, Social, and Governance (ESG) principles with financial and legal systems has become increasingly critical. Yet, insolvency frameworks, which are a critical corporate accountability system, have traditionally lagged in incorporating such transformative principles. This study explores the understated yet powerful confluence of ESG standards and India’s Insolvency and Bankruptcy Code (IBC), arguing that the future of insolvency reform must be harmonized with sustainability goals.

Employing a doctrinal and comparative analysis, the paper identifies systemic loopholes within the IBC in environmental commitments along with obligations, social spillovers, and governance failures of struggling businesses. It critically reviews the potentiality that the current resolution processes, which place almost singular emphasis on financial metrics, may risk ignoring long-term ESG performance and considerations of the public interest. Drawing on nascent international jurisprudence and policy shifts, the study presents an argument for rethinking India’s insolvency system where ESG metrics become critical elements of resolution planning, creditor assessments, and judicial oversight. While existing literature, most notably publication by the IBBI and a few academic studies has begun to acknowledge the need for ESG integration into India’s insolvency processes, much of it remains either normative or exploratory, with significant gaps in enforceability, stakeholder representation, and the treatment of environmental or CSR-related claims, including the lack of ESG performance audits, definitional clarity of ESG liabilities, and enforceable compliance post-resolution. The study offers forward-looking policy and regulatory suggestions, bridging the gap in existing literature that seek to embed ESG considerations in insolvency processes, hence bolstering corporate resilience, underpinning investor confidence, and enabling sustainable economic recovery. It also underscores the urgency of aligning India’s insolvency regime with global sustainability norms.