MNCs And Environment : A paradigm of blemishing the blue Planet

Author: Purnima Vashishtha, GLC, Mumbai

Manali Kumari, Bhartiya Vidyapeeth, New Delhi

Editor: Rahul Kumar Roy, Manipal University Jaipur


Before the 80' there were no rigid laws and order system for the environmental protection in India, as a result of which people and businesses from foreign countries started tampering and vandalizing the environment in the name of trade, due to which our environment faced a towering topsy-turvy. Water, air, land and even trees were getting harmed. The environment started getting severe affects globally. After the 80's, India enacted numerous laws and policies for environment protection such as WATER ACT 1974, AIR ACT 1981 and ENVIRONMENTAL PROTECTION ACT 1986.

MNCs – An Overview

Multinational Corporations also known as MNCs are corporations that operate in more than one country. According to the United Nations, a multinational Corporation is "an enterprise which owns or controls production or service facilities outside the country in which it is based." Its headquarters are located in one country (home country) while its activities are dispersed over other countries (host countries). MNC's deals over a wide spectrum of international trade activities like export and import, manufacturing goods and services, they are also indulged in endeavouring foreign investment. MNCs are therefore subjected and governed by various legal systems and hence have no specific or unique legal unit to control their activities.

In a developing world, MNCs play a very momentous role in social, cultural and political sphere, it is because of this reason that the concept of “Corporate Social Responsibility(CSR)” comes into place. One of the most important aspect of CSR policy is that it keeps a company in check as well as makes it responsible for environmental damage caused by it .

The companionship of multinationals companies in many developing countries has acquired substantial significance as it upshots their total foreign capital flows, domestic output and export trade. They have unrolled both beneficial and adverse effects on economic development of the country. At the same time, it must be accepted that industrial activities release deleterious pollutants that not only contaminates air but water bodies and land too and eventually affects the quality of human and other life[1]. The developing countries are no seriously concerned with negative effects of MNCs[2] particularly with regard to environmental pollution.

MNCs and Environment

MNCs have played a major role in fostering global economy but that does not give them a way out for causing environmental degradation. The environmental debasement caused by the actions of MNCs are humongous and detrimental. Time and again the international community has raised their concerns related to the industrial practices that lead to environmental damage. The continuous rising awareness of the ill-effects of the production processes, product performances and business practices has placed an immediate requirement of a system which makes the operation of MNCs more sustainable and eco-friendly.

MNCs cause a great deal of profit for a country by enhancing the overall work output through clean technologies, yet they still create a doubt whether their technology is safe enough to avoid environmental harm.

Legislative Reforms

Each nation has its own set of laws to protect the environment and the health of its citizens. However, when a MNC exploits natural resources of a host country and defaces its land, developing countries often fail to enforce these laws. In recent years, host governments faced with a continuing decline in the quality of the environment by industries (MNCs also); to combat the resulting pollution and other environmental damage, various laws and codes of conduct have been developed, and by expanding and reorganizing administrative agencies in order to ensure better enforcement of such laws. A complex range of regulations and institutional mechanisms have evolved, aimed at controlling the adverse environmental effects of industrial development[3]. Efforts have been made to strike a balance between the economic and environmental aspect of MNCs. In order to prevent the harmful effects on environment, a number of laws have been enacted in the past both on national and international podium.

In May 2002, the United Nations Environment Program (UNEP) released an extensive report saying that, "there was a growing gap between the efforts to reduce the impact of business and industry on nature and the worsening state of the planet" and that "this gap is due, to the fact that only a small number of companies in each industry are actively integrating social and environmental factors into business decisions[4]."

The Calcutta High Court in Peoples of United for Better Living in Calcutta v. State of West Bengal[5] observed:

"In a developing country there shall have to be developments, but that development shall have to be in closet possible harmony with the environment as otherwise there would be development but no environment, which would result in total devastation, there should be a proper balance between the protection of environment and the development process. The environment shall have to be protected but not at the cost of the development of the society and as such a balance has to be found out and administrative actions ought to proceed accordingly"

The Bhopal Gas Tragedy[6] raised various important questions with respect to the liability of the parent companies for their subsidiaries. It is believed that the tragedy could have been avoided if there had been an effective environment legislation which would have in turn placed a greater sense of responsibility and liability over the company. The disaster shocked the world and raised fundamental questions about government and corporate responsibilities for industrial accidents that devastate human life and local environment.

In Shriram Case[7] the Supreme Court of India observed "where an enterprise is engaged in a hazardous or inherently dangerous activity and harm results to anyone on account of an accident in the operation of such hazardous or inherently dangerous activity resulting, for example, in escape of toxic gas the enterprise is strictly and absolutely liable to compensate all those who are affected by the accident and such liability is not subject to any of the exceptions which operate vis-à-vis the tortuous principle of strict liability under the rule in Ryland v. Fletcher"[8].

The Polluter Pays Principle

The Polluter Pays Principle is a widely accepted principle welcomed by most of the countries in the world, including India. The Policy Statement for Abatement of Pollution issued by the Ministry of Environment and Forests, Government of India, accepts this principle as a fundamental policy to abate pollution. The principle imposes an absolute liability in cases where environmental damage is caused and demands that not only the victims of be compensated but also costs and expenses are paid to restore environmental degradation. The Supreme Court in various cases has applied this principle where the corporations breached and polluted the environment.


There exists a lack of international regulation and control which has made the problem of environmental practices of MNCs even more complex. The need of the hour is to create an authority, more powerful than MNCs, to regulate as well as enforce a standard of practice which not only protects the environment but also create a sustainable means for the purpose of peaceful co-existence. Environment being a global issue makes it even more necessary to evolve an equitable principle which would make the MNCs more accountable and liable for the damage and destruction caused by it to human life and environment.

[1] Kiran B. Chhokar, Mamata Pandya, Meena Reghunathan "Understanding Environment" 2005, at p. 202. [2] Sakti Mukherjee Outstanding Issues in International Economic Law 1985 at p. 63. [3] “United Nations Environment Programme; Environmental Law an –in-Depth Review", UNEP Report No. 2 (1981) p.5. [4] The actual quote is from a U.N. News Centre Article 15 May 2002 that introduces the report. [5] AIR 1993 cal. 215 [6] 1990 AIR 273, 1989 SCC (2) 540 [7] (1986) 2 SCC 176; 1986 SCC (Cri) 122; AIR 1986 Sc 1086. [8] 1868 19 C.T.220.

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