This pressure has not originated in the boardroom but is being driven by an increasingly hardening international regulatory architecture. Several frameworks such as the EU’s Corporate Sustainability Due Diligence Directive, 2024, Germany’s Supply Chain Due Diligence Act, 2021, France’s Duty of Vigilance Law, 2017 (Loi de Vigilance), and the US’ Uyghur Forced Labor Prevention Act, 2021 impose extensive supply chain due diligence obligations, especially in the hard-to-abate sectors. This results in the supply chain, including but not limited to the manufacturers, vendors, and suppliers, being required to disclose proprietary information, confidential operational data, and other sensitive business processes as part of the compliance and reporting obligations.

The risk

The risk these specific ESG disclosure obligations pose to intellectual property is at its core involuntary exposure dressed as compliance. For instance, an Indian manufacturer that signs an ESG audit schedule does not explicitly transfer a patent or trade secret; however, the operational data that flows via these clauses ultimately assembles into something far more valuable. Collectively, energy consumption, process emissions, supplier identities, and material ratios, they become a reverse-engineering map any sophisticated buyer can work backwards to understand precisely how a product is made, at what cost, and through whom. And this is the intellectual property which has been handed over in plain sight, buried in a schedule which no one scrutinised, protected by nothing, and recoverable by no one.

The governance gap that sustains the risk

This vulnerability continues to persist because it is rooted in the transactional governance itself. ESG schedules are insulated from commercial negotiation and are routinely approached by Indian counsel as standardised regulatory appendices. Furthermore, non-legal ESG advisors who are consulted for ESG mandates remain confined to compliance rather than risk mitigation. This creates an institutional blind spot that is devoid of clear ownership. These provisions are engineered by sophisticated foreign ESG counsels with acute awareness of the strategic value of the data they ought to be extracted from, while on the Indian side, they are often reviewed without due appreciation of their true character as instruments capable of facilitating profound competitive asymmetry.

This risk multiplies manifold times when these ESG assessments flow through third-party auditors and digital compliance platforms. The modern traceability and reporting tools deepen this risk further by transforming a periodic audit event into a permanent and automated live- data channel which is embedded in the operational and manufacturing relationship itself.

Drawing the distinction

It is pertinent to note that ESG frameworks are not inherently instruments of technological control. Their objectives continue to be that of sustainability governance and supply chain accountability, among others. They The concern arises not from their existence, but from broad contractual disclosure obligations that create informational asymmetries which no sustainability objective actually requires. Thus, the question for Indian manufacturers is not whether to comply with them, but to determine whether compliance, as currently drafted, demands more disclosure than the underlying regulation requires, and whether adequate protections govern that disclosure.

This concern is sharper and deeper in the Indian scenario, given the absence of a standalone trade secrets statute as compared with the EU’s Trade Secrets Directive or the US Defend Trade Secrets Act. The Indian system relies primarily on contractual confidentiality obligations, with protection varying significantly depending on the facts and the contractual framework. Hence, careful drafting and vetting of ESG audit clauses and disclosure mechanisms is therefore not optional, but essential.

The way forward

Moving forward, the point of departure, thus, must necessarily be structural. ESG audit and compliance review can no longer remain divorced from a legal risk analysis. Indian manufacturers must involve ESG lawyers at the pre-contractual stage itself, instead of relegating such engagement to post-execution compliance management. Since it is these professionals who understand not only the regulatory obligations driving the clauses but also the commercial exposure they create.

Contractually, resistance must be mounted on open-ended disclosure schedules and expansive audit frameworks while simultaneously narrowing the data-sharing requirements. Equally, the confidentiality provisions must extend to operational disclosures while regulating the access across the audit chain. In view of real-time monitoring, identifiable accountability must be imposed upon all participating entities. Lastly, ESG schedules must not be viewed as boilerplate compliance annexures, but instead as imperative commercial provisions warranting rigorous negotiation.

This article was originally published in Economics Times on 3 June 2026 Co-written by: Komal Karnik, Senior Associate and Ramisha Jain, Senior Associate. Click here for original article

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