Climate Change

Over 60% of Indian firms can identify, manage climate-related market risks, finds study

Climate risk to businesses discussed by 82% per cent of company boards, but many lack tools to handle

By Seema Prasad
Published: Friday 09 December 2022
Photo: iStock

Extreme weather events and natural disasters have become frequent in Asian countries due to climate change. Companies in India are increasingly aware of its financial impact, but a new analysis by a global advisory firm suggests that many lack the tools to manage climate risk. 

A large number of Indian companies listed on stock exchanges — 61 per cent — have the mechanisms in place to assess, identify and manage climate risk, found a new study by Willis Towers Watson (WTW). The firm has also launched a climate diagnostic tool for risk assessment. 

Only half the companies have set carbon emissions commitments, while the rest are unclear about their stand on the subject, the analysis said. India suffered $7.6 billion in losses and damages from floods and storms, according to the State of the Climate in Asia 2021 report.

Businesses need the right expertise in managing climate risks, a conducive regulatory environment and better data availability to undertake climate-related financial reporting, according to the study. 

Read more: Double whammy for the poorest: How pollution and changing climate affect countries

Of the companies with set carbon emissions commitments, 43 per cent aim to reach Net Zero carbon emissions by 2032, the report highlighted. The firms require a system to monitor their carbon footprint as well as proof them against future climate risks for this.

The WTW tool can help assess physical and transition risks for companies and can also generate tailored insights for reporting disclosures related to climate, said a press release.

“WTW has invested in data, expertise, and technology to develop the climate diagnostic tool. We have also developed an ecosystem of partners that allow companies to work together with the insurance markets on their climate transition plans,” Head of India for WTW Vivek Nath said in the statement.

In the year 2021, the Securities and Exchange Board of India introduced an Environment, Social and Governance reporting structure called Business Responsibility and Sustainability Report to be operational from the financial year 2022-23.

This is similar to the globally accepted protocol called Task Force on Climate-Related Financial Disclosures, where companies have to report their sustainability performance. The report also found that 53 per cent companies have active or limited internal discussions to disclose climate-related financial information.

The awareness level of these risks is up to the board and chief executive level, as 73 per cent of company leaders have oversight of climate, while 82 per cent of company boards have discussed climate risk to their business.

Sustainability, risk management and corporate strategy divisions are the business units responsible for climate-related financial risks in a corporate enterprise. 

Read more: India is not making businesses disclose climate risks: report

This function “highlights the importance of multiple functions working together to assess climate-related transition, physical and liability risks and opportunities, understand their financial impacts and source the required investments to fund actions for an organisation’s climate journey,” the advisory firm said in a press release.

The findings show an improved understanding of financial risks and opportunities. Companies deal with climate change in a leading capacity under sustainability agenda (64 per cent), corporate strategy (43 per cent), risk management (43 per cent) and finance (32 per cent).

According to the survey, climate risk disclosures are made the most by investors/lenders (75 per cent) and regulators (64 per cent).

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