Knowledge Series - Legitpro Associates LLP

Key Challenges SaaS Companies Face in Implementing ESG

by LegitPro Associates | Jun 27, 2024 | ESG, Knowledge Series

The rise of Environmental, Social, and Governance (ESG) criteria has transformed the business landscape, compelling companies across all sectors to integrate these principles into their operational strategies. SaaS (Software as a Service) companies, despite their digital-first nature, are not immune to these pressures. While ESG initiatives promise numerous benefits, including enhanced investor appeal and long-term sustainability, the journey towards effective implementation is fraught with challenges. This article delves into the key hurdles SaaS companies encounter and explores strategies to overcome them.

Quantifying ESG Factors

One of the most significant challenges for SaaS companies is the difficulty in quantifying ESG factors. Unlike traditional industries where environmental impact can be measured through tangible metrics like carbon emissions or water usage, the digital nature of SaaS operations complicates the quantification process. Key ESG aspects such as data privacy, cybersecurity, and digital ethics require unique and often abstract metrics.

For instance, assessing the environmental impact of data centres involves understanding energy consumption patterns, which vary greatly depending on the location and efficiency of the infrastructure. Moreover, social factors such as employee well-being and diversity require sophisticated data collection methods to ensure accuracy and relevance. The lack of standardized metrics further exacerbates this challenge, making it difficult for SaaS companies to benchmark their ESG performance effectively.

Navigating Diverse Assessment Systems

The proliferation of ESG assessment systems and frameworks presents another formidable challenge. Organizations like the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD) offer different guidelines and metrics. This diversity creates a complex landscape for SaaS companies to navigate, often leading to inconsistencies in reporting and evaluation.

SaaS companies must decide which frameworks best align with their strategic goals and stakeholder expectations. However, the absence of a universal standard can result in fragmented reporting, making it difficult to provide a coherent narrative to investors and other stakeholders. This fragmentation can undermine the credibility of ESG initiatives and obscure the actual progress being made.

Lack of Standardization in ESG Rating Methodologies

The inconsistency in ESG rating methodologies adds another layer of complexity. Various rating agencies use different criteria and weightings to evaluate ESG performance, leading to disparate scores for the same company. This lack of standardization can confuse stakeholders and erode trust in the reported ESG outcomes.

For SaaS companies, this inconsistency poses a particular challenge because their intangible assets and services are harder to evaluate through traditional ESG lenses. As a result, companies may receive conflicting feedback from different rating agencies, complicating their efforts to improve and communicate their ESG performance effectively.

Strategies for Overcoming ESG Challenges

To address these challenges and promote long-term sustainability and growth, SaaS companies should consider the following strategies:

Harmonizing ESG Standards

One effective approach is to work towards harmonizing ESG standards within the industry. This involves collaborating with industry peers, regulatory bodies, and standard-setting organizations to create a cohesive framework that can be universally adopted. By advocating for standardization, SaaS companies can reduce discrepancies in ESG assessments and provide more consistent and reliable data to stakeholders.

Leveraging New Technologies

Advanced technologies can play a pivotal role in overcoming ESG challenges. By leveraging AI, machine learning, and big data analytics, SaaS companies can enhance their data collection, analysis, and reporting capabilities. These technologies can help in accurately quantifying ESG factors, predicting future trends, and identifying areas for improvement. For example, machine learning algorithms can analyse large datasets to uncover patterns in energy consumption, enabling more precise environmental impact assessments.

Establishing Systematic Frameworks

Developing systematic frameworks that integrate ESG considerations into core business strategies is crucial. This requires a top-down approach, with strong support from senior leadership. Clear policies, measurable goals, and regular monitoring are essential components of such frameworks. Effective stakeholder communication is also vital to ensure that all parties understand and support the company’s ESG objectives.

Senior leadership must champion ESG initiatives, demonstrating their commitment through action and communication. By embedding ESG principles into the company culture, SaaS companies can ensure that these values permeate every level of the organization, driving meaningful change.

The Benefits of a Holistic ESG Approach

By adopting a holistic approach to ESG, SaaS companies can unlock numerous benefits:

Increased Revenue: Aligning with investor expectations on ESG can attract capital and open new revenue streams through sustainable products and services.
Reduced Costs: Efficient resource management and waste reduction can lead to significant cost savings.
Resilient Supply Chains: ESG considerations help in building more robust and adaptable supply chains.
Improved Compliance: Adhering to ESG standards ensures compliance with evolving regulations, reducing legal and financial risks.
Enhanced Employee Engagement: A strong ESG commitment can improve employee morale and productivity, fostering a positive work environment.

Conclusion

While the journey towards implementing ESG initiatives is challenging for SaaS companies, it is essential for sustainable growth and long-term success. By addressing the difficulties in quantifying ESG factors, navigating diverse assessment systems, and standardizing rating methodologies, SaaS companies can enhance their ESG performance and credibility. A strategic focus on harmonizing standards, leveraging technology, and establishing systematic frameworks, supported by senior leadership and effective stakeholder communication, will enable SaaS companies to thrive in the evolving business landscape. Integrating ESG considerations into their core strategy will not only drive sustainable development but also ensure competitiveness and resilience in the face of emerging risks and regulatory changes.

AN OVERVIEW OF HOLDING AND SUBSIDIARY COMPANIES IN INDIA- EFFECT OF THE 2017 AMENDMENT AND GENERAL FUNCTIONING

by LegitPro Associates | Sep 7, 2023 | Corporate Law, Knowledge Series

The term holding company has been defined under Sec 2(46) of the Companies Act 2013.The bare minimum reading of the Act states that companies of which a few companies are subsidiary companies are called as holding companies. The term subsidiary company has been defined under Sec 2(87) of the Act which states it, in relation to any other company, a company in which the holding company may control the composition of board of directors, exercises control over more than one-half of the total share capital either by its own or with the aid of one or more subsidiaries. Moreover, the explanation of the section can be stated as:

A deemed subsidiary company status would be conferred on a company of the holding company even if control held on it is vide another subsidiary company. The composition of the Board of Directors shall be deemed to be controlled by another company if the company by exercise of its power has the ability to appoint or remove the majority of directors. The Act also covers body corporates within its ambit. The example of Uniliver can be taken into consideration. Uniliver holds more than 50% of shares in Hindustan Uniliver Ltd. However, it is not a company within the definition of Companies Act 2013, albeit which it is called as a holding company. This is because of the interpretation of the provision, since Sec 2(87) includes body corporates. Thus, company in which a foreign body holds more than 50% shares is called as subsidiary company in spite the latter not being registered. However, the 2017 Amendment has had huge effect on holding companies. This article will give a brief overview of the same.

EFFECT OF 2017 AMENDMENT

The amendment made an alteration of replacing the term voting rights with shares. The concept entrenched a formula of 10 DVR (Differential Voting Rights are the ones in which value of shares are considered to be lesser than actual shares) is equivalent to 1 voting right. Hence companies adjudged on the basis of voting rights previously who could not be holding companies became holding companies by virtue of holding shares. Another impact of this is that, a company cannot have more than a fixed layers of subsidiaries. Although the amendment came in the yar 2017, a gap of 4 years post the enactment and implementation of the Companies Act 2013 paved way for a company to have multiple layers of subsidiaries. The catch however is, the amendment has mandated companies having more than 2 layers of subsidiaries, within 150 days to report to the Registrar of Companies. The registrar has the authority to mandate the company to not go in for increasing the number of subsidiaries or if voluntarily closed not to reopen new subsidiaries afresh on the pretext of having owned more subsidiaries before the enforcement of the amendment. Horizontally, a company can have as many subsidiaries as it wants. But vertically, the restriction has to be confined to 2 in number.

IMPLICATION OF A HOLDING AND SUBSIDIARY COMPANY AND THE RELATIONSHIP

While on the face of it, it may appear that the autonomy a company achieves though being a subsidiary or holding company is great, many relaxations provided to a private company are not provided to the subsidiary or holding company. A private company which is a subsidiary of public company will be termed as a public company even when the subsidiary company may continue to be a called as a private company in its articles. Moreover, a company cannot buy back its own shares from the subsidiary. Loan cannot be extended to individuals or companies willing to purchase the shares of a holding company. The books of accounts of the subsidiary have to be inspected by the person authorized by the Board of Directors. The consolidated financial statement of the holding company ought to disclose details about the joint ventures, associate company and its holding in the subsidiary company. In case the holding company has more than one subsidiary, it shall prepare a consolidated financial statement of all joint ventures, associate companies and subsidiary companies. The balance sheet of a holding company should disclose all investments made by it in the subsidiary. The profit and loss account statements should disclose dividends from subsidiary companies and provisions of losses for subsidiary companies. Hence, in addition to giving its own financial statement, a consolidated financial statement should be provided by every company having a subsidiary or subsidiaries. Similarly, balance sheet of the subsidiary should also disclose all shares held by the holding company. Under Sec 226(4) there are also restrictions for appointment as auditor since a person cannot be an auditor if any of his relatives has any interest by virtue of holding shares in company, or its subsidiary or subsidiaries. In addition to this, pertaining to remuneration received by the MD or WTD of a company can even be from a subsidiary company subject to the disclosure in the annual report. The prospectus of the holding company should disclose the particulars of the subsidiary company.

CONCLUSION

The parameters ascertained for holding and subsidiary companies also pave disadvantages. While a holding company holds shares of a subsidiary, subsidiary company cannot hold shares of a holding company. Even if the nominee company holds shares, this restriction extends to the ambit of the nominees of the subsidiary companies as well. But this concept helps subsidiary companies to be a member of the holding company. If the subsidiary is made the legal representative of deceased member of the holding company, or if subsidiary is concerned in shares as a trustee or if investment is held before the company becomes a subsidiary, such an investment can continue. However, no voting rights can be enjoyed by the subsidiary company in the holding company.

THE PERSONAL DATA PROTECTION BILL 2023 – INTRICACIES

by LegitPro Associates | Aug 15, 2023 | Data Protection, Knowledge Series

After plethora of debates, discussions and deliberations the Digital Personal Data Protection Bill 2023 was passed in the parliament on August 7 2023 that introduced the nation to various realms of data fiduciaries, and the way data is utilized by various institutions. Initially, the users of data, who had access to vagaries of personal information for bureaucratic purposes or otherwise had no obligation while processing confidential data of data principals. India needed a data protection bill to be at par with the global standards due to it’s fair share of struggles in keeping pace with rights like personal liberty, right to be forgotten along with public welfare and governmental standards and requirements. Though a lot of organizations have their own way of compliance and technology policies pre-ordained it has now become essential for the policies to defy the key aspects of the bill. Pertaining to applicability of the bill, the provisions of the bill will come into force only when the central government notifies it in the official gazette.

DATA FIDUCIARY VS DATA PRINCIPAL

The bill draws our attention to the difference between data fiduciary and data processor. The storehouse of data is called as a data principal. When the data of the data principal is collected for a specific purpose subsequent to which it is digitally processed, the latter entity becomes the data fiduciary who is under an obligation to comply with obligations on data fiduciaries set out in the bill. In case an organization processes personal data on behalf of another organization, the former entity will be called as a data processor. The organization on behalf of which the data is processed is called as data fiduciary. A few entities in specific situations will be treated as significant data fiduciaries. The list of situations may include: The goodwill and mutual benefit of public order, situations of risk to electoral democracy and threat to security of state, risk to tights of data principals and impact on sovereignty and integrity of the nation, with due regard to volume of personal data processed by the data fiduciaries. When an organization falls into the category of the abovementioned situations, it will be called as a significant data fiduciary. The applicability of the bill extends to processing of personal data collected in digital form and processing a personal data collected in non-digitized form and digitized subsequently. However, not all personal data are same. The Information Technology (Reasonable security practices and procedures and sensitive personal data or protection) Rules, 2011 classifies information into personal data and sensitive personal data or information. Unfortunately, the bill does not do so and considers all personal data uniformly without an intelligible differentia. One panacea to this issue is, continuation of applicability of Information Technology Act 2000 albeit the data protection bill getting enacted. Under Sec 43 A of the IT Act, one has to provide compensation for failure to protect personal sensitive data or information. So, even if the bill fails to ordain a differentiation of personal and personal sensitive data with punishment thereto, bi-compliance of both legislations simultaneously will facilitate better protection of personal data of individuals.

GUIDING PRINCIPLES OF THE BILL

Forming a balance between need for protection of personal data and need to process data for lawful processes from governmental objectives the bill seeks to achieve protection with minimum disruption to enhance ease of doing business and living so that India’s digital economy and innovation ecosystem see a dynamic change. Few principles that guide the implementation of the bill include consented, lawful and transparent use of personal data, purpose limitation of using data for the ascertained purpose at the time of obtaining data from the data principal, data minimization which seeks to collect a small amount of data apropos the purpose intended to be served. The ancillary principles include principle of storage limitation of preserving and storing as much data that is required for the time being, and principle of security, safeguards and accountability. The accountability factor is constantly kept on check vide adjudication of data breaches, infringement of principles enshrined in the bill, and imposition of penalties in case of damage. The bill is, SARAL (Simple, Accessible, Rational and Actionable Law). With plain language, clear illustrations and dearth of cross referencing the provisions have been kept lucid for common individuals to grasp. Though there are powers conferred on the board to remediate and mitigate data breaches, or perform judicial and regulatory functions, processing Indian personal data under foreign contract and locate defaulters and their financial assets, the exemptions granted to certain authorities becomes a bone of contention in understanding the intention of the proposed bill.

THE RIGHTS PROVIDED BY THE BILL

The individuals now have the right to access the information about the processed data, the right to be forgotten that has been interpreted as a foreign judgment has taken a form of a right as seeking erasure of the data, the right to get the grievance redressed, and in case of an unforeseen circumstance of death or incapacity, the data principal has the right to select a nominee for representation of his, and his data. When data breaches are found, the data protection board is intimated immediately in addition to which if the data principal withdraws the consent, the data is sought to be erased. The bill mandates appointment of an auditor who can conduct periodic data protection impact assessment to ensure higher degree of data protection. Extending the protection to children, data fiduciary is allowed to process the data of children only with parental consent and processing that is detrimental to child welfare, like targeted advertising, behavior monitoring or tracking are prohibited.

CONCLUSION

The exceptions provided for non-compliances of certain provisions of the bill can still be concerning. For approved mergers, de-mergers, or prevention, detection, investigation and prosecution for enforcement of legal rights and claims can be arbitrarily used. But much leeway is provided for voluntary undertakings from data fiduciaries since the board is permitted to request the government to block the website of data fiduciary that is found to be repeatedly breaching the data protection guidelines. However, a question arises, as to what if the data fiduciary is the government itself. The bill fails to provide clarity on this aspect.

Legal Aspects of Commercial Real Estate Leasing: Ensuring a Fair and Secure Agreement

by LegitPro Associates | Aug 8, 2023 | Corporate Law, Knowledge Series, Real Estate

Key Considerations in Commercial Real Estate Leasing: Demystifying the Legal Landscape

Commercial real estate leasing involves a myriad of legal considerations for consumers. The lease agreement serves as the backbone of the leasing process, requiring careful review to protect consumer rights. Commercial real estate leasing can be a complex and intricate process for consumers, involving various legal considerations that must be carefully navigated. At the core of this process lies the lease agreement, which is the foundation of the lease relationship.

To protect their rights and interests, consumers must thoroughly review the lease agreement, paying close attention to its terms and conditions. This includes understanding and negotiating key aspects such as rent, lease duration, maintenance responsibilities, and dispute resolution mechanisms. Financial considerations are also critical, as consumers must strike a balance between the cost of the lease and the value they receive. This involves negotiating the rent amount and understanding and accounting for additional expenses, such as common area maintenance (CAM) fees, insurance costs, property taxes, and utilities. Moreover, consumers need to be vigilant about the condition of the property they are leasing. Conducting thorough inspections and ensuring that the lease agreement clearly outlines the landlord’s maintenance responsibilities can help protect their investment and avoid potential disruptions to their business operations. Another important aspect for consumers to consider is the flexibility to assign or sublease the leased premises.

Understanding the terms and conditions related to assignment and subleasing provisions allows consumers to assess their options for growth and expansion while adhering to the landlord’s requirements. In addition, consumers should carefully review the default and termination clauses in the lease agreement to safeguard their interests in case of any unforeseen circumstances. These clauses define the consequences of default and outline the procedures for terminating the lease, ensuring that consumers have appropriate remedies and protections.

Lastly, compliance with applicable laws and regulations is essential for consumers to maintain their integrity and avoid legal issues. Understanding and adhering to zoning restrictions, permits, licenses, and other legal obligations prevents potential legal consequences and contributes to responsible business practices. Consumers can establish a solid foundation for a successful and secure leasing experience by considering and navigating these legal aspects of commercial real estate leasing.

In conclusion, commercial real estate leasing involves a range of legal aspects that must be carefully addressed in the lease agreement. By paying close attention to the terms and conditions related to the leased premises, financial obligations, property condition and maintenance, assignment and subleasing, default and termination, and compliance with laws and regulations, landlords and tenants can establish a secure and fair leasing arrangement. Seeking the guidance of legal professionals experienced in commercial real estate law is advisable to ensure that all legal considerations are adequately addressed, protecting the interests of all parties involved.

Affirmative Action in Education: Bird’s Eye View

by LegitPro Associates | Aug 2, 2023 | Education, Knowledge Series, Regulatory Compliances

Affirmative Action in the United States is as controversial as it is complex, and a topic that has sparked intense litigation, capturing a significant portion of American legal history. While the term itself was first linked to a policies promoting racial equality in 1961 in an Executive Order issued by President John F. Kennedy, its application to educational institutions began much earlier. In a nutshell, Affirmative Action refers to policies and practices aimed at providing opportunities to historically marginalized groups, particularly racial and ethnic minorities, women, and individuals with disabilities. The objective is to address the historical disadvantages and discrimination faced by these groups and promote equal opportunities.

Perhaps the first instance of historic litigation on affirmative action was Brown v. Board of Education, (1954) (‘Brown’). In actuality, this name was given to five separate cases that were heard by the U.S. Supreme Court regarding the constitutional validity of segregation in public schools. The Supreme Court ruled unanimously that racial segregation in public schools violated the Equal Protection Clause of the Fourteenth Amendment to the Constitution of the United States of America. The decision overturned the “separate but equal” doctrine established by Plessy v. Ferguson in 1896, which had allowed for racially segregated public facilities. Brown was pivotal in the American civil rights movement, highlighting the inherent inequality of segregated education and setting the stage for desegregation efforts across the United States.

Following Brown, Regents of the University of California v. Bakke (1978) (‘Regents’)was another landmark ruling on affirmative action. Allan Bakke, a white applicant, challenged the University of California’s affirmative action program, which set aside a specific number of seats for minority applicants. With a 5-4 majority, the Supreme Court held that quotas may not be used for reserving seats for minority applicants. However, it upheld the idea that race could be considered as one factor among many in the admissions process. This decision established the principle of “narrowly tailored” affirmative action, requiring institutions to consider race as part of a holistic review process rather than using rigid quotas.

In Grutter v. Bollinger (2003), University of Michigan Law School’s affirmative action policy was challenged by a white applicant who was denied admissions despite having the requisite qualifications. The admissions policy took candidates’ into consideration without granting them automatic advantage. The Court, in a 5-4 decision, held that the school’s policy, which considered race as one of many factors in admissions decisions, was “narrowly tailored” to achieve the compelling interest of diversity. The decision emphasized the educational benefits of diversity and recognized that race-conscious admissions programs could be constitutional under certain circumstances, and was therefore did not violate equal protection guaranteed by their Constitution.

The Supreme Court’s stance on affirmative action shifted significantly in Fisher v. University of Texas at Austin. Abigail Fisher, a white applicant, challenged the university’s affirmative action policy, claiming she was denied admission based on her race. In 2013, the Court sent the case back to the lower courts, instructing them to apply a strict scrutiny standard to assess whether the university’s admissions policy met the necessary requirements. The case was later revisited in 2016, and the Court upheld the university’s policy, emphasizing that it met the standards of strict scrutiny.

Most recently On June 29, 2023, U.S. the Supreme Court ruled the affirmative action policies of the University of Harvard and University of North Carolina as unconstitutional. This ruling now prohibits universities from now considering race as a factor for admission of students. What this implies, effectively, is that number of students in universities from under-represented minorities in the U.S. (Hispanic, Black, Asian-American, Indigenous etc.) will reduce over time, affecting the overall diversity of a student body. Will this impact international students applying to American universities for higher education? Probably.

Sports Jurisprudence: Navigating the legal landscape in India

by LegitPro Associates | Jul 19, 2023 | Knowledge Series, Startup

INTRODUCTION

Relating to sports activities in the country, sports law is an ever evolving and emerging law in India that revolves around acts of players, associates covering areas of contract, intellectual property and tort law but sans a proper legislation. A great part of sports law is covered by Contract Act which within its scope includes contracts between sports players and other parties doping policies deciding liability in the light of toddler harassment in sports intellectual property and players rights. Few other avenues may include broadcasting and endorsement of advertisements rules and policies regarding conflict of interest.

VARIOUS CONTRACTS IN SPORTS LAW

Various contracts can be drafted between players and other parties to name a few agency, indemnity, appearance, endorsement, and standard player contract. A Standard Player Contract is signed between sports clubs and athlete where the athlete agrees to represent and play for a sports club regardless of bonus or salary that he receives. On the other hand, an Appearance Contract the sign to appear in a public function for an exchange of consideration. The rate of consideration and the term of appearance is decided in this contract. The establisher of relations between athlete and private persons or sponsors to use the image of athletes in advertisements is called as the Endorsement Contract. As a lot of sports persons are susceptible to injuries insurance agreements are a must for clubs and event organisers which is manifested through Indemnity Agreements. Professional aspects of an athlete are managed by an agent due to which they have an agent principal relation between them called as the Agency Contract.

ANTI- DOPING POLICY IN SPORTS LAW

Ethical manual ordains law against doping. Usage of drugs as performance enhancers are banned according to the Anti-Doping Laws formulated by various authorities. This is for adhering to world Anti-Doping Agency Code and educate people about ill effects of such psychotropic substances. Few Anti-Doping violations include, presence of prohibited substances or the metabolites in athlete’s sample, use or attempt to use of prohibited substance by an athlete, refusing to submit a sample despite being notified, failure to provide information for where about or unavailability for doping control examination, trafficking of prohibited substance or tempering with Anti-Doping control method, complicity and prohibited Association. The World Anti-Doping Agency annually updates the list of prohibited substances or methods. This International standard define what is prohibition in-competition and out-competition the list goes on to indicate if a particular substance is banned in sports. Indeed, with such diversity even competition law is felt important since it renders a contract void if it affects the market.

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