In April 2015, the finance ministers of the G-20 countries and the governors of their central banks asked the Financial Stability Board (FSB), an international body that monitors and makes recommendations about global financial systems, to examine how the financial sector impacts or is impacted by climate change. In December that year, when the Paris Agreement was hammered out, the FSB set up a task force to identify information needed by investors, lenders, and insurers, to assess and price climate-related risks and opportunities for businesses.
In July 2017, the Task Force on Climate-related Financial Disclosures (TCFD) formally released its recommendations. As many as a hundred CEOs pledged support. The disclosures relate to aspects such as emissions, energy consumption, water use and so on.
The Indian scene
An advocacy group called CDP (or Climate Disclosure Project, which long preceded TCFD) has been monitoring the climate-related disclosures of global companies. Its findings on Indian companies for 2020 came out recently. Two messages emerge from it — more and more Indian companies are making climate-related disclosures; and the number is still woefully small.
For the first time, Indian companies got into CDP’s List A, the top of the four categories ranked in terms of transparency. These were Hindustan Zinc, IndusInd Bank, Mahindra & Mahindra, and Tech Mahindra. As many as 220 companiesmade climate-related disclosures in 2020 — a 17 per cent increase over the previous year. The CDP report notes that water security disclosures to investors witnessed a significant rise of 80 per cent.
Emissions disclosures fall under three categories: Scope 1, which covers direct emissions from sources owned or controlled by the entity; Scope 2, which includes indirect emissions from the generation of purchased electricity, steam, heating and cooling; and Scope 3, which counts all emissions down the entire supply chain of the business entity. Scope 3 emissions are 5-6 times more than the carbon footprint of a company’s direct operations and is hence important.
The number of companies that counted and disclosed their Scope 3 emissions nearly doubled — the report does not mention the number but says that 39 ‘Scope 3’ companies offered their disclosures for third-party verification. There has also been an increase in the number of companies offering themselves for third-party verification — 59 for Scope 1 and 51 for Scope 2.
Likewise, more Indian companies (52) have adopted ‘science-based targets’ — on various counts such as emissions and energy consumption that are scientifically established to be consistent with the Paris target of reducing global warming to well below 2 degrees C over the pre-industrial levels. Globally, a thousand companies have committed to science-based targets, but just six countries account for over 600 of them, the sixth being India — the only developing country in the list. Similarly, in terms of ‘internal carbon pricing’, where companies add a carbon price to each of their activities with a carbon footprint, the number of Indian companies adopting it is on the rise.
All this illustrates that more Indian companies are becoming sensitive about climate risks. Damandeep Singh, Director, CDP India, observes that the number of Indian companies willing to make climate disclosures is showing “a marked improvement, holding out hope for the future”.
However, the number is still small as a share of the total number of business entities in the country. CDP India sent questionnaires to some 200 companies; only a fourth responded.
Push from investors
Climate disclosures are gaining importance by the day because investors are demanding it. This datapoint underscores that reality: 515 investors with $106 trillion in assets, and 150-plus large purchasers with $4 trillion in buying power requested thousands of companies to disclose through CDP in 2020.
Secondly, there is a call to make climate disclosures mandatory and there is every reason to believe that the call will be heard.
The government is seized of the issue. In December 2020, the Ministry of Environment, Forests and Climate Change (MoEFCC) constituted a high-level inter-ministerial Apex Committee for Implementation of the Paris Agreement, under the chairmanship of the Secretary, MoEFCC. Climate disclosures can be expected to be high on the committee’s list of priorities. When disclosures become mandatory, those companies that are already inside the room will obviously have a headway over those who try to get in then.