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Climate risk – India Inc must act now

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Climate risk – India Inc must act now

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The increase in frequency and severity of natural catastrophic events facing the world due to climate change is upon us. According to the 2021 IPCC Climate Change Report, flash floods, scorching temperatures, droughts and intense cyclones will continue to devastate parts of South Asia unless drastic measures are taken to reduce carbon emissions. . According to the Overseas Development Institute report, India could lose about 3-10% of its GDP per year by 2100, and its poverty rate could increase by 3.5% by 2040 due to climate change. climatic.

Regulatory landscape

India announced its goal of achieving net zero emissions by 2070 at COP26 and demanded $1 trillion in climate finance as soon as possible. According to an estimate by the CEEW Center for Energy Finance, India would need cumulative investments of $10.1 trillion to achieve net zero emissions by 2070.
In fact, India and other countries have called for a “Glasgow Loss and Damage Facility” whereby incumbent transmitters would pay poor countries to repair loss and damage caused by extreme weather events. Climate change has also recently found a place in the discussions and active actions of regulatory bodies like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

RBI has insisted on integrating 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 asked the top 1,000 listed entities by market capitalization in India to implement new sustainability-related reporting requirements.

Company role

Investors and shareholders, insurers, consumers and civil society are increasingly concerned about the impact of climate change on organizations as regulations evolve, new technologies emerge and consumer behaviors change. .

While the role of regulators and government is essential, it is equally essential that the private sector play its part in the transition to a sustainable and more resilient net zero economy. According to a recent survey by the Willis Research Network, climate change was ranked as the most underestimated risk and needed better understanding. Unfortunately, however, organizations can become delusional about climate risk, assuming it will need attention in the future.

Although a growing number of companies are assessing climate risk as part of their enterprise risk management (ERM) framework, the number is still small and scattered. Moreover, even fewer quantify their current and future climate risks in financial terms. Therefore, progressive companies embarking on this path should build on global efforts to create 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, the Task Force on Climate-Related Financial Disclosures (TCFD) was established in 2015. TCFD recommendations help an organization disclose to its shareholders, regulators and civil society how climate change will financially impact their business, focusing on four pillars: governance, strategy, risk management, and metrics and targets .

It requires organizations to measure, act on, and disclose their physical and transition risks using scenario analysis. It also helps organizations shape their strategy by identifying risks and opportunities for moving towards a low-carbon economy.

Today, 83 of the top 100 global organizations support or report in accordance with TCFD recommendations. TCFD supporters, spanning 89 countries and nearly every sector of the economy, have a combined market capitalization of over US$25.1 trillion.

Some of the potential benefits associated with implementing the task force recommendations include easier or better access to capital by building investor and lender confidence, effectively meeting existing disclosure requirements for reporting material information in financial records, 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, political and regulatory bodies are coming together to deliberate on the role of organizations in risk assessment, disclosure and action. Notably, G20 countries already endorsed the TCFD framework earlier this year. As a member, India should welcome the adoption by organizations that are already signatories to the TCFD and encourage more organizations to join.

Currently, very few organizations in India are part of the TCFD initiative. While these organizations are the frontrunners, others must 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 – businesses that embrace climate risk assessment and management soon have a better chance of survival and growth.

–Rohit Jain, Head of India, Willis Towers Watson and Ujwal Nagdeote, Executive Vice President – Risk and Analytics, Willis Towers Watson India Insurance Brokers. The opinions expressed are personal.

(Edited by : Yashi Gupta)

First post: STI

Climate risk – India Inc must act now

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