France stands tall, having encoded the TFCD recommendations into law
CHENNAI: India fares poorly when it comes to asking companies to disclose how vulnerable their businesses are to climate-related risks, says a recent report of the Cambridge University.
The Cambridge Institute of Sustainability Leadership (CISL) went into how different countries are doing in terms of getting their companies to disclose climate-related risks. It assessed the countries’ experience against the recommendations made by a Task Force on Climate-related Financial Disclosures (TFCD).
The Task Force was set up by the Financial Stability Board, which is an international body set up by the G20 nations to monitor and make recommendations about global financial systems. The Board, which came into being in April 2009, was a successor to the erstwhile Financial Stability Forum. In July 2017, the TFCD came up with recommendations on companies disclosing vulnerability of their businesses to climate-related risks. Cambridge University’s CISL looked into what each country did to follow the TFCD recommendations in the last one year.
It put the results into five categories of compliance with the recommendations — no formal engagement with TFCD, political and regulatory engagement, formal engagement with the private sector, publication of guidelines/action by national authorities and encoding into law.
‘No formal engagement’
India figures in the ‘no formal engagement with TFCD’ category, meaning the country had done nothing in terms of following the Task Force’s recommendations, even though there may be other environmental risk disclosure guidelines in place.
In India, companies do regularly mention climate-related risks under ‘risks and concerns’ in their balance sheets. For example, Tata Power’s Annual Report for 2016-17 notes that regulatory orders to address climate change could adversely affect valuation of coal-based power stations and that the rapid expansion of renewable energy could come at the cost of thermal power plants’ capacity utilisation.
Recently, the Climate Policy Initiative, a US-based think-tank, noted that most of the coal-based power plants operated at around 60 per cent capacity-utilisation levels, perilously close to the ‘52 per cent’, below which the plants would go out of business. It assessed that a third of India 197,000 MW of coal-based plants (or 65,000 MW) faced this risk.
The Task Force recommends even more detailing. For example, it wants companies to build scenarios and discuss organisations’ strategies against climate-related risks. It also asks organisations to describe the resilience of their strategies, taking into consideration different climate-related scenarios.
CISL has noted in its report that India’s Securities and Exchange Board of India (SEBI) has introduced a requirement to produce business responsibility reports for the top 100 listed entities in 2012, which was increased to the 500 largest listed companies in 2016 (SEBI, 2016).
Only one in G20
However, “We have not been able to find evidence of specific TCFD-compliant initiatives,” it said. Notably, only one of the G-20 countries – France – is in the highest level, having encoded the TCFC recommendations into law. Argentina, Indonesia, Korea, Russia and Saudi Arabia give India company in the least category, viz., ‘no formal engagement with TCFC recommendations’. Most countries are in the second level, ‘political and regulatory engagement’.
Experts have recognised that disclosing climate-related risks is actually good, as it gives a clearer picture to financiers. “This intervention by FSB and TCFD would accelerate overall understanding of climate-related risks and opportunities towards better decision making, which in turn would fuel climate finance globally,” Rana Kapoor, MD & CEO, YES Bank, told BusinessLine by email.
He added that the TCFD recommendations would play “a critical role in mobilising public and private finance for climate action and future-proofing of business.”