The increase in frequency and severity of natural catastrophic events that the world is facing as a result of climate change is upon us. As per the IPCC Climate Change Report 2021, flash floods, sizzling temperatures, droughts, and intense cyclones will continue to devastate regions in South Asia unless drastic measures are taken to curb carbon emissions. According to Overseas Development Institute report, India may lose anywhere around 3 to 10 percent of its GDP annually by 2100, and its poverty rate may rise by 3.5 percent by 2040 due to climate change.
Regulatory landscape
India announced its aim to achieve net-zero emissions by 2070 at COP26 and demanded USD 1 trillion of climate finance as soon as possible. According to an estimate by CEEW Centre for Energy Finance, India would need cumulative investments of USD 10.1 trillion to achieve net-zero emissions by 2070.
In fact, India and other countries called for a “Glasgow loss and damage facility” through which historical emitters would pay poor countries to remedy the loss and damage caused by extreme weather events. Climate change has also recently found a place in active discussions and actions of regulatory bodies like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).
RBI has insisted on incorporating climate risks into commercial banks’ Risk and Compliance strategies as one of its future goals. RBI also became a member of the Network for Greening the financial system (NGFS) in April 2021 and has identified climate change as a significant risk to our financial stability. Earlier this year, SEBI had instructed the top 1,000 listed entities by market capitalisation in India to implement new sustainability-related reporting requirements.
Role of corporate
Investors and shareholders, insurers, consumers, and civil society are increasingly concerned about the impact of climate change on organisations as regulations evolve, new technologies emerge, and consumer behaviours shift.
While the role of regulators and government is essential, it is equally critical for the private sector to play its part in the transition to a sustainable net-zero and better resilient economy. According to a recent survey by the Willis Research Network, climate change was ranked the most underappreciated risk and needed a greater understanding. Unfortunately, however, organisations can become delusional about climate risk, assuming it will need attention well into the future.
Although a growing number of corporates are assessing climate risk as part of their Enterprise Risk Management (ERM) framework, the number is still few and far between. Moreover, even fewer quantifies their current and future climate risks in financial terms. Therefore, progressive companies taking this direction should tap into global efforts at building frameworks and methodologies to assess and disclose their climate risks.
Imperative to identify risks and opportunities
To promote more informed investment, credit, and insurance underwriting decisions, Task Force on Climate-Related Financial Disclosures (TCFD) was established in 2015. The TCFD recommendations help an organisation disclose to its shareholders, regulators, and civil society how climate change will financially impact their businesses, focusing on four pillars – governance, strategy, risk management, and metrics and targets.
It requires organisations to measure, action, and disclose their physical and transition risks using scenario analysis. It also helps organisations shape their strategy by identifying those risks and opportunities to move towards a lower-carbon economy.
Today, 83 of the world’s largest 100 organisations support or report in alignment with the TCFD’s recommendations. TCFD supporters, spanning 89 countries and nearly all sectors of the economy, have a combined market capitalisation of over US$ 25.1 trillion.
Some of the potential benefits associated with implementing the Task Force’s recommendations include easier or better access to capital by increasing investors and lenders confidence, effectively meeting existing disclosure requirements to report material information in financial filings, increased awareness and understanding of climate-related risks, and opportunities resulting in better risk management and more informed strategic planning.
For the first time, public, private, policy, and regulatory agencies are coming together to deliberate the role of organisations in assessing, disclosing, and acting on the risks. Notably, G20 countries have already endorsed the TCFD framework earlier this year. Being a member, India should welcome the adoption by organisations that are already TCFD signatories and encourage more organisations to join.
Currently, very few organisations in India are a part of the TCFD initiative. While these organisations are the frontrunners, others need to follow suit or choose from other leading disclosure platforms and accreditation frameworks such as CDP or Climate Transition Pathways.
The writing is on the wall – companies that embrace climate risk assessment and management soon have a better chance at survival and growth.
Courtesy- https://www.cnbctv18.com/views/climate-risk-india-inc-needs-to-act-now-1221313