The climate issue is likely to have a huge impact on Indian companies and their long-term sustainability.
Given this backdrop, it is time that authorities here – stock market regulator Securities and Exchange Board of India (SEBI), stock exchanges, banks, other lending institutions, etc. – started asking local businesses more probing questions on how they are gearing up for the climate challenge.
Authorities stepping up vigil would ensure that a larger number of companies undertake detailed reporting of the Climate-related risks faced by their operations, the likely material impact of such risks, and the measures being taken to address these possible threats. Closer monitoring would also make it difficult for enterprises to avoid disclosure of these facts because of any fears that these companies may have of some probable adverse impact such information coming out could have on their stock price movements or ability to raise funds.
Embarking on an initiative of the kind being proposed, moreover, could help authorities to determine not just the nature and extent of the climate risks faced by individual companies but also that of different business sectors. operating in the economy. In addition to being able to assess the climate resilience of various business segments and the companies present in such sectors.
Armed with this new knowledge, banks, going forward could take better and more informed decisions on the quantum of money they should lend to companies/business sectors facing a greater climate-related risk, and thereby reduce the possibility of their loans turning bad and becoming non-performing assets (NPAs). In the process, banks could become improved custodians of taxpayer money.
From the perspective of SEBI and the stock markets, the exercise could equip them to better protect the interests of the investor community by getting to a position where they are able to suitably plug the loopholes that companies may be currently exploiting to get away from making known publicly the climate risks to their operations. The initiative could also lead to SEBI working with the government to bring in new regulations that would not leave much room for listed companies to wriggle out of coming clean on the climate-related risks front.
In recent times, many companies worldwide, including those in India, have been assiduously engaged in trying to showcase themselves as a force for climate good to different stakeholders. The need to make a good impression ahead of the upcoming COP26 meeting to be held in Glasgow this November has been playing on their minds in this regard. These efforts are only likely to gain momentum in the days ahead because of the heightened emphasis now being accorded to the climate issue by countries led by the United States.
There could, thus, be no better time than the present for authorities to start digging deep into whether large companies have been practicing what they are preaching when it comes to issues around climate. The compulsion to come across as model corporate citizens would now make giant enterprises more amenable to walking the talk on the climate front.
[The author is an advisor at the Gurgaon-based advisory on communications and stakeholder advocacy R M Consulting. Views expressed are personal.]