India Inc can no longer ignore climate shocks

Its climate-initiatives have tended to focus on stewardship rather than addressing risks to operations and value-chains.

India Inc can no longer ignore climate shocks
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By Rohit Jain & Anu Jogesh

By at least one estimate, India has lost about $80 billion dollars in the last 20 years to climate-related disasters. And that number is expected to escalate. But is corporate India sufficiently aware of climate risks, and has it put in place mechanisms to address it? Or will companies play catch-up?

Available climate data supports an increase in the magnitude and frequency of climate-linked events, projected to further affect agriculture productivity, impact infrastructure assets and services, reduce productivity of labour force, cause supply-chain disruptions and result in financial losses to businesses. Equally costly going forward is the economic fallout of the global transition to a low-carbon economy. The recent CDP report calculated that 42 Indian companies together foresee ?7.14 lakh crore at risk from climate change. It is thus imperative that the public and the private sector build back sustainably, with an eye on mapping and managing climate-related future-shocks.

Globally, the private sector has put its weight behind the Task Force for Climate Related Financial Disclosures or TCFD. TCFD is seen as a key platform and framework for businesses to assess, manage, and disclose the financial impacts of climate change. In India, 43 companies have signed up for TCFD, with 72% of the Indian signatories coming on board in 2020 and 2021. Several factors are likely driving this new momentum, including greater board-level awareness, growing investor pressure, and climate impacts increasingly disrupting business continuity.

So, India Inc has begun acknowledging climate risks to business; however, concrete efforts are yet to be made. While there is greater momentum around ESG reporting, companies’ initiatives tend to focus on driving stewardship rather than addressing material risks to operations and value-chains. Moreover, sustainability reports are largely disparate and do not allow for any comparability or industry bench-marking. Finally, very few companies are quantifying their current and future climate risks in financial terms. For growing companies wanting to tackle climate change, there are two key challenges; limited access to complex datasets and tools to assess their risks, and the lack of a government framework or mandate to undertake these efforts.

These bottlenecks must be addressed. First, to build greater appetite for action, stakeholders from the climate and business space need to come together to raise awareness and make a business case around the economic costs of climate inaction.

Second, companies that are signing up to do more must tap into global efforts on building frameworks and methodologies for businesses to assess and disclose their climate-risks. In addition, insurers and insurance intermediaries have sophisticated risk-exposure and loss data to quantify physical risks.

Finally, in terms of a public sector mandate, while India has not officially endorsed the TCFD, recently, two key initiatives have provided some regulatory push. SEBI released its latest Business Responsibility and Sustainability Reporting (BRSR) format, and RBI joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS). The BRSR guidelines, applicable to the top-1,000 companies by market capitalisation, require companies to disclose their energy- and water-usage, and report plans around GHG emission reduction. More broadly, the guidelines ask companies to quantify material risks and opportunities for their businesses. In addition, RBI’s NGFS membership should be the first step for the central bank on applying global best practices on the management of climate risk for the financial sector.

Building company resilience to climate change should be viewed as a shared mandate for a more resilient economy. It is imperative that current economic recovery efforts, both by the public and private sector, put in place systems and governance processes to better mainstream climate risks.

Jain is India head, and Jogesh is with Climate and Resilience Hub, Willis Towers Watson
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First published on: 23-07-2021 at 05:45:41 am