This blog has been written by Ashar Nezami and Yash Agarwal, students at RMLNLU.
Introduction
In a significant attempt towards strengthening environmental governance, the Ministry of Environment, Forest and Climate Change (‘MoEFCC’) notified the Environment Audit Rules, 2025 on 29th August 2025, aiming to institutionalise private auditors for assessing compliance with environmental regulations. Previously environmental monitoring and enforcement was primarily undertaken by government bodies such as Central Pollution Control Board (‘C-PCB’), Regional Offices of MoEFCC, State PCBs and Pollution Control Committees. However, due to resource, manpower and infrastructure constraints, these bodies could not adequately perform their duties in the assessment field. The new rules aim to bridge this gap by allowing private agencies to become similar to how chartered accountants are licensed to check financial compliance.
Although the new rules are a welcome step in this regard, they remain incomplete as they fail to specify any criteria for auditing governmental or semi-governmental organisations. While the introduction of private assessment is a commendable step to address resource constraints for government bodies, which will continue to conduct their own assessments independently, these rules fall short by granting undue precedence to governmental assessments over private ones, as reflected in Rule 16, which will be examined later.
This article critiques the futile application of independent audits to activities involving government interests. By focusing on the interplay between government and private audits, it argues that Rule 16 undermines the independence of private auditors. To substantiate this claim, this piece draws on insights from surveys and reports that highlight the importance of independent auditing. It further draws comparative insights from international audit models, such as those in the US, Australia, and the UK. Lastly, it proposes recommendations to enhance the effectiveness of environmental auditing in activities laden with significant government interest.
Government Interference And The Erosion Of Audit Independence
The new audit rules introduced several positive changes to enhance environmental compliance by easing the workload for government assessment bodies through the adoption of self-evaluation. It permits private auditors to register themselves as a Registered Environment Auditor (‘REA’) as defined under Rule 2(j) to audit projects and report non-compliance with various environmental regulations, as authorised under Rule 3(i)(xii). To decide the criteria and qualifications for a REA, Rule 5 specifies the formation of an Environment Audit Designated Agency (‘EADA’) as a government-controlled body with the power to lay down the essential standards.
The new idea of independent evaluation, though laudable, remains incomplete because the wording of the rule hinders its applicability to any activity with a large government interest. To begin with, the rules lack specific provision that clarifies its application on governmental organisations, leaving a grey area for subjective interpretation. In this aspect, it may be argued that the text of its preamble, which states, “Environment audit of the projects, activities, or processes approved under the Environment (Protection) Act, 1986…….”, could be interpreted broadly to any activity that receives approval under environmental law (s). However, Rule 16(2) defeats this purpose by giving precedence to an audit carried by a government officer over a private one in case of any conflict. This makes it convenient for government to escape liability in case an REA finds any activity laden with government interest to be non-compliant with environmental law(s), as the government can simply counter it with its own report presenting a contradictory finding.
Moreover, Rules 16(1) and 10(2) exacerbate this issue by imposing a mandate on REA and EADA to follow the directions, rules & regulations notified by the government from time to time. Although these provisions may seem necessary for standardisation, they risk granting excessive power to the government which may hinder the effectiveness of private auditors by indirectly influencing their decision making.
This excessive governmental control raises serious questions about the auditor’s independence; in this context, Rule 12 becomes relevant as it seeks to promote autonomy in the new mechanism. Interestingly, it works to prevent conflicts of interest by ensuring that the auditor does not audit any activity laden with familial, professional or financial interest. While this Rule aims to ensure that there is no third-party influence in private audits, the overarching effect of Rule 16 – allowing the government report to take precedence over a private one – undermines its application. Since the government is empowered to override a private audit reports, it introduces third-party intervention in the reports. This defeats the very purpose of Rule 12 and undermines the effectiveness of environmental audits.
Significance of Independent Auditing
The International Organization of Supreme Audit Institutions flagged out similar concerns in its report titled “Sustainability Reporting in Public Sector and The Role Of SAIS”. The report talks about Supreme Audit Institutions (‘SAIs’) that finally report to public sector bodies or government as their oversight authority and face similar problems as flagged out in the interpretation of Rule 16. It lays stress on the issue around conflict of interest in situations of governing authorities setting out reporting requirements. The overriding authority may prescribe specific standards to ensure that the activities in which they have an interest are presented in a favourable light. The importance of auditor independence underscores the need for a genuinely autonomous audit regime, free from any undue influence or control by authorities.
In the research carried out by Abdul Latif Jameel Poverty Action Lab (‘J-PAL’) affiliates in collaboration with the Gujarat Pollution Control Board (‘GPCB’), the researchers found incredibly positive results in the aspect of auditor independence. They designed a new framework for evaluation where auditors were assigned randomly to firms for assessment. The findings showed that the auditors were 80% less likely to present false data, and the industrial plant emissions reduced by nearly 28%. Following these findings, GPCB reformed its environmental auditing system in 2015 through the Environmental Audit Scheme, mandating random auditor allocation via a digital platform called the Extended Green Node (‘XGN’). This assessment highlights the importance of independence in environmental audits. The new rule attempts to promote this idea but fails to do so due to Rule 16. The notion of unchecked government oversight and the undue precedence given to government reports undermines the very independence of the auditing process and renders the accuracy of compliance reports meaningless. Even if auditors produce a precise and evidence-based assessment, the government can easily override it with a contradictory report serving its own interests, thereby nullifying the credibility and purpose of the independent evaluation. This highlights a broader challenge of “Auditing the Auditors”, where constrained mandates fail to reflect the complexity of the work these auditors are required to undertake.
Auditing the Auditors
The connection between evidence, governance, and institutions in the advancement of sustainable development is highly complex. Reviewing organisations with a direct responsibility for managing the boundaries between evidence and policy reveals insights into this complexity. However, these organisations often seem, at least officially, to have more constrained mandates and clearly defined limits, regardless of the complexities of their position.[i] India even lacks such an organisation that audits the auditors, i.e., the government.
One such organisation is prevalent in the United Kingdom (‘UK’) i.e., the United Kingdom Parliamentary Environmental Audit Committee (‘EAC’). It was established in 1997 to scrutinise government departments’ initiatives to incorporate environmental and sustainable development into policymaking. EAC was thus set up as a watchdog to evaluate and question the government and hold them accountable for their efforts towards the environment. Furthermore, it audits government departments and non-departmental public bodies (‘NDPBs’) performance against targets set for them by Ministers; and to report to the House. The UK government has inculcated a policy-based approach to encourage the integration of the environment and sustainable development into government decision making.[ii]
Australia also has an audit mechanism in place; however, it is unlike the UK’s policy-based approach. The Australian National Audit Office (‘ANAO’) conducts environmental performance audits of the Australian Government. This is done in extension of its responsibility to conduct full range audits. ANAO usually conducts two to four environmental performance audits annually. These audits are complemented by the performance audits delivered by state and territory Auditors-General. Canada has also developed an intra-governmental environmental audit mechanism in place. The performance audits conducted by the Auditor General of Canada includes examining the environmental impact of the government programs. Moreover, Canada is also rolling out the Environment and Climate Change Canada (‘ECCC’) Audit and Evaluation Plan (‘AEP’) for internal audit, advisory, evaluation for fiscal year 2023-2028. These instances can be a guiding light to bring the focus on internal governmental audit along with the audits of private entities.
Drawing from the best models across the globe, Indian government should make efforts to audit itself. The “Auditing the Auditor” practice is already prevalent globally in jurisdictions such as the UK, Australia, and Canada. India can learn from its counterparts and roll out a mechanism to ensure environmental compliance across all types of organisations. Ensuring compliance with environmental laws, particularly by government organisations, demonstrates a more substantial commitment to addressing environmental degradation. The government must first exemplify what it expects others to follow – practicing what it preaches. If the government itself remains negligent in complying with environmental norms, the private sector is likely to be equally superficial. Therefore, a uniform international approach is necessary, wherein jurisdictions, including India, prioritise environmental compliance within governmental institutions before preaching the same.
Conclusion and The Way Forward
As stated before, the new environmental audit rules have been rolled out by the government for managing the resource and strategic constraints by introducing private assessment. These rules are a welcoming step, however, keeping government departments out of the private audit’s purview should not be overlooked. The Indian Government should also bear a share of the responsibility for harming the environment. Rule 16 makes the REA subordinate to an Officer or official of the Central or State Government, by creating an over-riding mechanism. This can affect the independence of REA and EADA, who may fear that their report will be over-ridden when they audit close affiliates of the government. While this framework is welcoming if the REA gives partisan reports however, there is still need of an unbiased and unpartisan framework. An Independent Oversight Board (‘IOB’) may be set up, comprising of one government nominee appointed by MoEFFC, one member from the REA, and an independent environmental expert. IOB should be set up when any REA or EADA is entrusted by the Central Government. This framework can alleviate the fear among the REA and EADA. So, after an audit report is prepared by REA or EADA, it will be reviewed by IOB, and only it will have the power to set aside the audit report instead of the government in the existing scenario.
The official work conducted by government departments is still paper dominant and environmentally detrimental. However, working towards sustainable development internally is on the whims of the government. Public Sector Undertakings like ONGC have taken headlines due to pollutive activities carried out by them and sometimes fined by the National Green Tribunal (‘NGT’). Nonetheless, auditing the working of government departments may be a game changer.
Following the UK model could make the process more complicated and slower, as creating a new body might defeat the very purpose of the audit. The Australian Model can be rolled out in India where the Comptroller and Auditor General (‘CAG’) is entrusted with the task of conducting performance audits of the Union and State government departments including commercial and non-commercial government institutions, autonomous bodies financed from Union or State revenues and companies where equity participation by the government is in excess of 51%. Although the Commonwealth Auditors General Conference hosted by India’s CAG briefly mentioned environmental audits, the CAG still does not have any role in auditing the environmental performance of government departments. Expanding the CAG’s mandate could help fill the gap left by the Environmental Audit Rules, 2025.
Additionally, the function of the private auditor mechanism introduced by the new rules can be expanded to assess the accuracy of CAG’s report. Suppose the auditors assess the accuracy of CAG’s evaluation. In that case, the room for error will decrease, and the CAG will work more diligently knowing that these private auditors can question the credibility of its report. However, in this model, private auditors would not be given the absolute authority to term the CAG’s report as inaccurate. Instead, they would have the power to check its validity and raise concerns against the NGT or the court of law. This model works as the best middle ground for assessing environmental compliance because the power would be proportionately distributed between the private players and the CAG. Both parties would be able to raise concerns about each other’s findings, thereby maintaining an internal check without the need for a separate body.
[i] John Turnpenny et. al., The complexity of evidence for sustainable development policy: analysing the boundary work of the UK Parliamentary Environmental Audit Committee, 38(4) Transactions of the Institute of British Geographers 586, 587 (2013).
[ii] Andrea Ross, Greening Government—Tales from the New Sustainability Watchdog, 12(2) Journal of Environmental Law 175, 176 (2000).
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