With the exponential growth in the Indian economy and its consequential impacts on human resources, the Labor Laws in India are intended to regulate industries and businesses to protect the workforce from exploitation, discrimination and inequality. Thus, the need for laws that combat issues with regard to Diversity, Equity and Inclusion (“DEI”) is pertinent in the Indian context. However, from a business perspective, the Securities and Exchange Board of India (“SEBI”) has released a Consultation Paper on Environment, Social and Governance Disclosures, Ratings and Investing, that elaborates on the perspective of gender diversity in the workforce and its correlation to sustainability risks and investor decision-making. Due to the emergence of these regulation prompts, companies are urged to increase their focus on social issues as an integral component of their sustainability strategy. This also highlights the interface between Environment, Social and Governance (ESG) and DEI in India.
What is Organizational Diversity and Inclusion?
“Diversity” is a term used to describe the variety of perspectives brought about by a difference in factors such as gender, sex, gender identity, ethnicity, neuro-diversity, and religion, reflected in Article 16 of the Constitution of India. Thus, demographic diversity is mandated as a fundamental right in order to ensure inclusion in the workplace. In this new age of globalization, new work and new workers are bound by the framework of labor laws. Thus, the need for good corporate governance, social considerations and a boost in DEI is crucial to India’s development and reputation.
What is ESG?
The ESG criteria are a framework of guidelines meant to help in setting a company’s organizational strategy to generate value for all organizational stakeholders. The framework helps in quantifying a company’s performance on various ethical, social and sustainability issues, which then allows investors to assess the risks related to the company and decision-making. The current ESG framework put forward by SEBI is called “Business Responsibility and
Sustainability Reporting”(“BRSR”). It is important for the ESG criteria to be satisfied because of their role in investor decision-making and risk disclosure for the company as these decisions impact all stakeholders, including society at large. The “S” in ESG denotes the “Social” aspect of a company’s organizational strategy. The Social aspect includes the Diversity and Inclusion strategy and governance; Accessibility, and more. In this regard, the Indian Labor Laws play a crucial role in closing the gap between regulation and compliance. From working in hazardous environments such as mines to overworking in fast fashion clothing factories, Indian Labor Laws are meant to ensure employee welfare and correlation with the Social aspect of the ESG criteria.
Case Study: The Karnataka Factories (Amendment) Bill, 2023
The Karnataka State Assembly has cleared the Factories (Karnataka) Amendment Bill 2023, as per which a woman can be required or allowed to work in any factory between 7 PM and 6 AM. However, this is subject to the employer taking the specified steps to ensure the safety of the women workforce at the workplace. It has been alleged that the Bill was passed by the Karnataka State Assembly because of the lobbying by multinational companies such as Apple and Foxconn, pressurising Indian lawmakers to utilize human resources in India and replacing the workforce that was driven by the Chinese economy.
The Bill could bring about advantages for women in the State of Karnataka, such as a potential increase in employment opportunities, especially for those who may not be able to work during the day due to family responsibilities. This could help promote gender equality and women’s economic empowerment. However, in contrast, there are various concerns about the safety of women during night shifts, particularly in light of India’s high rates of sexual harassment and violence against women. While the Amendment specifies that the employer must take steps to ensure the safety of women in the workplace, there are questions about how effectively these measures will be implemented.
In this regard, it can be observed that the liability to ensure women’s safety during night shifts is placed on the employer, along with ensuring that there are no “reasonable grounds that a woman feels disadvantaged in connection with her employment” and the maintenance of a redressal mechanism. Additionally, the Bill states that during night shifts, more than 1/3rd of the supervisory shift-in-charge shall be women, which creates an increase in demand for women if women are employed on the night shift at all. Lastly, it was stated that “careful routes” shall be selected to ensure that no woman is picked up first and dropped last to and from their area of work.
While Diversity, Equity and Inclusion in the workplace should be at the forefront of priorities, the Karnataka Factories (Amendment) Bill places many limitations on the employment of women – deterring employers from including women in the workforce during the night shift. The night shift provides a channel of income for women who have different obligations during the day, such as family obligations, and more. However, through the placement of liabilities on the employer, and effectively deterring them from employing women during the night shift, there is little advantage in bringing about this provision at all.
Firstly, through the employment of women during night shifts, the employer must ensure that “no woman employee should have reasonable grounds to believe that she is disadvantaged in connection with her employment”, following a plethora of different requirements such as the installation of CCTV cameras, female security guards, female supervisors, complaints redressal mechanism and more. Secondly, women’s employment in night shifts would lead to an increase in the number of women in the workplace, which would increase the liability on the employer and thus, deter them from employing women in the workplace. Lastly, it is unlikely that women would engage in night shift work when they already have to fulfil the roles of the primary caregivers in their families and disproportionately carry the burden of household duties. The increase in the labour force participation of women in paid work over the years has not translated into a decrease in women’s provision of care work at home; it has only left women workers working more hours.
This may be interpreted as a step forward for DEI, as it aims to promote women’s roles in the workplace and women’s economic empowerment. However, this provision does little to promote Diversity, Equity and Inclusion in the workplace because of the various liabilities placed on the employer. While these duties are important, it is also crucial to acknowledge that employment opportunities should be meted out in order to fulfill the duties and responsibilities of the roles that they are employed in, and not to fulfil the DEI criteria which would later prove to be detrimental not only to women employees but also to the economy as a whole.
Therefore, it is crucial that the Karnataka Legislative Assembly revisits this Bill, with inputs not only from the general public but also from employers, employees and State representatives – carrying forward the Principle of Tripartism in International Labor Law. By allowing the opinions and perspectives of the different parties involved, the Bill will encompass different aspects of labour and employment, and safeguard the interests of women in connection with their employment. Through this case study, it can be concluded that laws being passed in order to facilitate the meeting of DEI requirements are detrimental to society at large, and are also a step backwards for the Social aspect of ESG, which is being promoted worldwide.
The Way Forward
The example of the Karnataka Legislative Assembly passing a Bill allowing women to work in night shifts is detrimental to women empowerment, and can only be seen as a channel to increase workforce productivity in the guise of meeting the DEI requirement without safeguarding their actual interests. To implement DEI requirements better in India, without the imposition of legislative action, a policy mechanism could be introduced under the ESG framework that focuses on the “S” or social aspect of ESG. A potential policy mechanism that could be implemented is through the introduction of a DEI scorecard.
Overall, introducing a DEI scorecard under the ESG framework could be an effective policy mechanism for promoting and measuring progress on DEI requirements in India, encouraging companies to prioritize and invest in effective DEI practices, and ultimately creating a more diverse, equitable, and inclusive society without imposing ambitious quotas and obligations on employers.
How would the DEI Scorecard be measured?
The DEI scorecard would need to be measured using a combination of quantitative and qualitative indicators to provide a comprehensive assessment of a company’s DEI practices. Potential indicators that could be included are:
The company’s diversity data being reported for all levels of the organization, including the board of directors, senior management, and employees. The data should cover different dimensions of diversity, such as gender, ethnicity, age, sexual orientation, and disability. Therefore this would encompass Diversity at all levels.
Additionally, the company should report on its efforts to ensure pay equity across all levels of the organization, including any steps taken to close pay gaps and promote equal pay for equal work.
Anti-discrimination policies: The company should report on the existence and effectiveness of its anti-discrimination policies, including any complaints or investigations related to discrimination and the steps taken to address them. This would encompass Pay Equity.
The company should report on its efforts to create an inclusive workplace culture, including any programs or initiatives that promote DEI and employee satisfaction surveys. This would go to show workplace diversity. Lastly, the company should report on the type and frequency of DEI training provided to employees, including senior management, and the effectiveness of such training.
These indicators can be assigned scores based on their importance and relevance to DEI and then aggregated to provide an overall DEI score for the company. Companies can be incentivized to improve their DEI score by tying it to financial incentives, as mentioned earlier. By measuring DEI through a scorecard, companies can identify gaps and areas for improvement, and work towards creating a more diverse, equitable, and inclusive workplace.
In summary, implementing a DEI policy mechanism within the ESG framework in India can create a win-win situation for businesses, society, and the environment, while advancing the cause of sustainability and inclusion. Implementing a DEI policy mechanism within the ESG framework in India would also serve to reinforce compliance with the country’s labor laws, without the imposition of legislative action by governments. By mandating the reporting of DEI
initiatives and implementing the proposed DEI Scorecard, businesses would be required to not only focus on DEI but also ensure that they are complying with the Labour Laws in India. This would help in safeguarding the actual interests of employees, promoting Tripartism – a principle in International Labour Law, and in creating a level playing field for all workers. Therefore, implementing a DEI policy mechanism would complement existing the BRSR framework and Indian Labour Laws, enhancing their effectiveness in promoting fairness and justice in the workplace.
(This post has been authored by Isabel Liao, a 4th Year Law Student at School of Law, Christ (Deemed to be University)
CITE AS: Isabel Liao “The Impact of Social Governance in Indian Labor Law- An Analysis” (The Contemporary Law Forum, 07 October 2023) <
tclf.in/2023/10/08/the-impact-of-social-governance-in-indian-labor-law-an-analysis/> date of access.