ESG related Risks and

opportunities (including
investment)
CA. Jyoti Singh
Partner, Aumyaa Consulting Services LLP.
B.COM, FCA, DISA
Certificate Course on BRSR (ICAI)
GRI Certified, TCFD Certified
 Risk Management related to Sustainability

Achieving true sustainability, encompassing environmental, social, and economic

well-being, demands a comprehensive approach that addresses interconnected risks..
By proactively identifying and mitigating these risks, organizations can build
resilience, foster long-term success, and contribute to a more sustainable future.

ENVIRONMENTAL RISKS SOCIAL AND CULTURAL GOVERNANCE RISKS

•Climate change threatens RISKS •Lack of direction , strategy and
•agricultural systems, •Fair wages, plan
•water resources, and ecosystem
•Safe working conditions, and ethical •Incorrect decision-making
stability.
treatment of workers.
•Biodiversity loss disrupts •Absence of accountability,
•Non inclusiveness and
• supply chains and food security. •Inadequate resource allocation
•Conflicts.
Resource scarcity from •Lack of focus on compliance,
overexploitation can lead to conflicts
•No Code of conduct for bribe
over essential commodities like water
and corruption prevention
and minerals.

.
Risk Management related to Sustainability
 Identification and Measurement of
Environmental Risks in ESG •Climate Change
Focuses on the environmental aspect of sustainability-related risk,
• Waste
delving into the identification and measurement of risks associated
with climate change, resource depletion, and biodiversity loss.
Management
.
•Water Pollution
(A) Scenario Planning: Imagine diverse (C) Stakeholder Engagement: Involving
future scenarios, from best-case climate individuals and groups interested in or •Air Pollution
stabilization to worst-case ecological affected by environmental risks helps
collapse. This approach helps anticipate gather wider knowledge and perspectives, •Resource
potential threats and prepare contingencies, revealing blind spots in traditional risk
broadening understanding of potential assessments. Depletion
threats and developing flexible strategies.
Identifying Biodiversity Loss
environmental risks
demands proactive •Chemical Spills
exploration and
meticulous analysis •Non-Compliance
(B) Vulnerability Assessments: These (D) Value Chain Analysis: VCA provides
a comprehensive view of environmental
•Deforestation
assessments help understand the
potential impacts of environmental
impacts from all stages of a product or
service's lifecycle, mapping potential
•Energy
hazards on ecosystems, societies, and 05
infrastructure, predicting weak spots.
environmental downsides from raw
material extraction to final product
Consumption
disposal.
 Tools in Measuring and Managing Environmental Risks

Evaluates potential environmental LCA focuses on environmental

effects of a project, product, or policy. footprint of product or service
EIAs quantify resource consumption, throughout its entire lifecycle, from
emissions, potential environmental cradle to grave. Helps identify
damage, providing roadmap for resource hotspots, pollution
minimizing negative impacts. Environmental Life Cycle sources, informing sustainable
Impact Assessment design & production practices.

Assessment (LCA):
(EIA):

Environmental Cost-Benefit
Utilize sophisticated models to predict Risk Analysis: Quantify financial implications
potential impacts of environmental Modelling: of environmental risks and
risks like climate change and extreme mitigation strategies. Helps
weather events. These models inform
prioritize investments in risk
risk-based decision-making and enable
management and demonstrates
businesses to build resilience for a
range of potential scenarios.
long-term economic benefits of
sustainable practices.
 What are Social and Cultural Risks

Social and cultural risks are an integral part of ESG (Environmental, Social, and Governance) analysis, representing potential threats to
a company’s reputation, financial stability, and overall sustainability due to their impact on people and societies. Identifying and
measuring these risks effectively is crucial for making informed investment decisions and ensuring responsible business practices.

Diversity,
Labor Product safety Community Data privacy
equity, and Cultural
Practices and liability Relations and security
inclusion Sensitivity

⚬Poor ⚬Faulty products or ⚬Disrespectful or

⚬Labor law ⚬Lack of engagement services that cause ⚬Breaches of insensitive
violation diversity in the with local harm to consumers. customer data marketing
⚬ Unfair labor workforce and communities ⚬Nonadherence to ⚬unethical data campaigns,
practices, leadership, ⚬Disruption of quality compliances collection disregard for
⚬ violations of ⚬ gender pay livelihoods, standard practices local customs
human rights, gaps, ⚬Environmental ⚬ Non Disclosure of ⚬Usage of and traditions.
⚬Discrimination, ⚬ discriminatory damage caused safety instruction for
customer data ⚬ Engagement in
⚬ poor working practices by business product usage.
for purpose controversial
conditions, operations. ⚬Falsification of
⚬ inadequate
other than for practices
product information
compensation, and usage
what it was ⚬Lack of respect
information collected for cultural
diversity.
04
 Identifying and Measuring Social and Cultural Risks

Challenges and Considerations

Third-party ratings and
reports: Assessing ESG
ratings and reports provided Measuring social and cultural risks can be challenging due to their
by independent agencies to inherent subjectivity and complexity. Some key challenges include:
gain insights into a • Data availability and quality: Accessing reliable and
company’s social and relevant data on social and cultural factors can be
cultural risks.
difficult
Stakeholder mapping: Data analysis: Utilizing • Weighting and prioritization: Assigning appropriate
Identifying and engaging internal data on employee weight to different types of social and cultural risks
with different stakeholder Several frameworks and demographics, labor
groups (employees, methodologies exist to can be subjective and context dependent.
practices, safety incidents,
communities, NGOs, etc.) to
help companies identify and community complaints • Dynamic nature of risks: Social and cultural risks
understand their concerns to identify patterns and can evolve rapidly, requiring continuous monitoring
and potential risks. and measure social and
trends. and evaluation.
cultural risks. Here are
some key approaches:
Despite these challenges, effectively identifying and managing social
and cultural risks is essential for responsible investing and sustainable
Social impact assessments: Benchmarking: Comparing
Evaluating the social and
business practices. By integrating social and cultural considerations
a company’s social and
cultural impacts of a cultural performance into ESG analysis, companies can mitigate risks, enhance their
company’s operations on a against industry standards reputation, and contribute to a more equitable and sustainable society.
specific project or initiative. and leading practices.
 Identification and Measurement of Governance Risk in ESG

The pursuit of environmental, social, and governance (ESG) objectives necessitates a robust understanding of inherent
risks. Among these, governance risk emerges as a critical factor that can significantly impact a company’s ability to
effectively manage and measure its ESG performance. In simpler terms, weaknesses in corporate governance practices
can lead to negative consequences, jeopardizing the company’s commitment to ESG goals.

Impact on Identification
⚬ Lack of Transparency: Opaque governance practices create an information vacuum, making it difficult for
stakeholders to accurately assess a company’s ESG risks and opportunities.
⚬ Inaccurate Reporting: Ineffective internal controls and oversight can lead to misleading disclosures of ESG data,
hindering the identification of true risks and hindering decision-making based on accurate information.
⚬ Ineffective Board Oversight: Boards lacking diverse expertise or dominated by executives with conflicting interests
can overlook crucial ESG issues, leading to blind spots in risk identification.

Impact on Measurement
⚬ Non-standardized Metrics: Absence of clear and consistent ESG measurement frameworks can lead to the use of
subjective or unreliable metrics, making it difficult to accurately assess and compare a company’s performance.
⚬ Data Manipulation: Weak data governance practices create fertile ground for manipulation of ESG data, allowing
companies to present a falsely positive image of their sustainability efforts.
⚬ Lack of Accountability:Absence of clear consequences for poor ESG performance can discourage companies from
accurately measuring and improving their impact, hindering progress towards true sustainability.
 Examples of Governance Risks in ESG

Conflicts of interest: Board members or executives with

personal interests that conflict with the company’s ESG
goals can influence decisions in a way that harms the
company’s sustainability efforts.

Corruption and bribery: Unethical practices can not

only damage reputation but also lead to environmental or
social harm, jeopardizing the company’s commitment to
sustainability.

Lack of board diversity: Boards lacking diversity in terms

of gender, race, and expertise may not fully consider the
diverse perspectives and insights crucial for effective ESG
decision-making.
 Mitigating Governance Risks

Strengthening Board Improving Transparency Adopting Clear ESG Engaging with

Oversight & Disclosure Policies & Frameworks Stakeholders

Regularly engaging with

Ensuring diverse expertise on Implementing robust reporting Establishing clear policies and
stakeholders on ESG issues
the board and establishing standards and providing frameworks for identifying,
can help identify blind spots
clear ESG oversight stakeholders with regular and measuring, and managing ESG
and ensure that company’s
responsibilities can provide accurate information about risks ensures consistency and
priorities align with
effective checks and balances, ESG performance can build accountability throughout the
stakeholder expectations,
mitigating potential risks. trust and enhance credibility. organization.
fostering a collaborative
approach to sustainability.
 Commonly used tools and frameworks standards by
using which one may be able to identify ESG risks

1.Global Reporting Initiative (GRI): A widely used framework providing comprehensive

guidelines for sustainability reporting.
2.Sustainability Accounting Standards Board (SASB): Industry-specific standards for
disclosing financially material ESG information.
3.Carbon Disclosure Project (CDP): A global platform collecting comprehensive data on
environmental performance, including greenhouse gas emissions and water usage.
4.Task Force on Climate-related Financial Disclosures (TCFD): Provides
recommendations for companies to disclose climate-related financial risks and
opportunities.
5.UN Principles for Responsible Investment (PRI): A set of voluntary principles for
integrating ESG considerations into investment decision-making.
6.UN Sustainable Development Goals (SDGs): A set of 17 global goals aiming to
eradicate poverty, protect the planet, and ensure prosperity.
7.ISO 14001 and ISO 45001: International standards for environmental management and
occupational health and safety, respectively.
8.Carbon Footprint Assessment Tools: These tools help organizations calculate and
analyze their greenhouse gas emissions.
9.ESG Data Providers: These companies provide data on ESG performance metrics,
allowing for benchmarking and comparative analysis.
10.Custom ESG Software and Tools: Companies can develop or utilize specialized software
tools tailored to their specific ESG assessment needs.
 The best tool or framework for an organization will depend on
its specific needs and resources. Organizations should consider
the following factors when choosing a tool or framework:

The size and complexity of the The industry in which the

organization: Larger and more organization operates: Some
complex organizations will need industries face more ESG risks
more sophisticated tools and than others.
frameworks.

The organization’s ESG goals: The organization’s budget: ESG

The tool or framework should be tools and frameworks can be
aligned with the organization’s expensive, so organizations should
ESG goals and objectives. budget accordingly.

05
 Specific Management Actions in ESG risk
management
•Integration into Business Strategy: Management incorporates ESG factors into the overall
business strategy, aligning goals with sustainability, social responsibility, and governance
excellence.

•Setting ESG Goals and Policies: Management sets clear, measurable ESG goals and policies,
integrating sustainability principles into the organization's core fabric.

•Identification and Assessment of ESG Risks: Management conducts thorough risk

assessments to identify and prioritize ESG-related challenges for effective mitigation.

•Implementing Risk Mitigation Strategies: Management devises and executes plans to address
identified risks, ensuring sustainable practices and ongoing monitoring.

•Stakeholder Engagement: Management actively involves stakeholders to enhance

transparency, accountability, and relationships through open dialogue and diverse perspectives.

•Monitoring and Reporting: Management oversees ESG performance monitoring and

transparently reports key metrics to stakeholders, tracking progress and demonstrating
commitment to sustainability.

•Incorporating ESG into Corporate Culture: Management embeds ESG principles into
corporate culture through leadership commitment, employee engagement, and shared
understanding.
Future Trends in ESG Risk Management
Emphasis on Data and Technology: AI, machine learning, IoT, and big data analytics
are revolutionizing ESG risk management through real-time monitoring, predictive
modeling, and enhanced data accuracy, enabling informed decision-making.

Growing Importance of Scenario Analysis: Organizations are using scenario-based

risk assessments to evaluate the impact of various future scenarios on operations and
develop resilient strategies for ESG risks.

Shift Towards Industry-Specific ESG Frameworks: Industry-specific standards are

gaining traction as organizations seek tailored ESG risk management approaches, with
sectors like finance developing unique standards for banks, insurance companies, and
investment firms.

Focus on Social and Human Capital Considerations: Companies are prioritizing

employee well-being, diversity, inclusion, and social impact, adopting metrics to
quantify social impact and integrating these considerations into strategic
decision-making.

Evolution of Investor Role: Investors are becoming more sophisticated in ESG

integration, demanding greater transparency, and aligning portfolios with sustainability
goals, which is influencing capital allocation and driving companies to prioritize
sustainable practices.
 ESG risk is a critical consideration in acquisitions,
dispositions, joint ventures, mergers and public listings

DOCUMENTATION AND
DUE DILIGENCE IMPLEMENTATION
Robust documentary protections, integration of an effective compliance
ESG DD is not dissimilar to other DD exercises e.g., Corporate
program and audits ensure that key ESG issues and risks are identified and
DD. However, while Corporate DD focuses on risks to the
mitigated
business, ESG DD focuses on risks to others.

Contractual protections. ESG liability risks can be addressed and

ESG DD should be fully comprehensive - across all relevant
minimized through the use of tailored representations, warranties and
jurisdictions, group companies as well as parents and
covenants; indemnification; and W&l insurance.
involvement up to and including the board and key management.

ESG compliance program. Integration of a target to a business requires

Cannot be 'one-size-fits-all' approach. Level of ESG DD
careful planning to ensure that ESG risks are addressed as part of an
required would be dependent on the size of the company, sector
effective ES compliance program to ensure ongoing compliance with global
and industry, geographical reach, the business and its supply
ESG standards (such as MSCI ESG Ratings).
chains, and the particular projects in scope.

Supply Chain DD exercise is a continuous process. It does not Periodic audits of an ESG compliance program. Continuing ESG program
end at collecting information from the supply chain, but requires monitoring and periodic audits will work to ensure that business' risk
regular audits, reviews and checks to ensure policies have been management assessment plans (e.g. cybersecurity, environmental risk,
properly implemented throughout. health and safety, and D&l) are appropriately implemented and fit for
purpose.
 Effective governance is critical for ESG compliance. Organizations need to develop or incorporate an
ESG program to ensure that processes and controls are in place for effective governance.

Embedding ESG across the organization Hallmarks of an effective ESG program

•Leadership ownership of ESG program
Organizations need to consider whether the principles of •Code of Conduct
good governance are properly embedded, including:
Tone at the top •ESG and Human Rights Statement
•Assess key ESG risks in supply chain
Assessing key ESG and governance risks in business •Implement process to identify important ESG issues and
responsibilities
developing and enhancing group governance policies and Risk Assessment •Ensure policies and procedures account for ESG issues
compliance programs to be adopted at subsidiary level
•Conduct thorough background checks on prospective
partners.
Delivering comprehensive and practical training to •Develop a plan for monitoring ongoing operations &
directors and key management in the business Standards and accountability.
Controls •Require suppliers to acknowledge company's ESG
Developing and implementing appropriate monitoring compliance policies
•Development and deliver training to directors and key
and whistleblowing programs, including as part of the
management
enterprise risk management framework
Training and •Evaluate and develop appropriate training program for
Communication employees and suppliers
Investigating potential breaches of the ESG program and •Audit and monitor suppliers.
other misconduct •Regularly monitor and review ESG program and investigate
Auditing, any potential non-compliance.
Enhancing and remediating any breaches Monitoring and •Consider adopting a tiered approach that reflects the
or noncompliance. importance of the supplier and risk factors
Remediation.
 ESG RISK FACTORS IN INVESTMENT

ESG adoption has changed way large investors, and the companies hold in their portfolios, view risks associated with traditional
business models and potential for sustainable future value creation.
● Risk appetite: whether ESG risk considerations are appropriately taken into account in the limits and formal targets set and are
consistent with the (ESG) risks the investors is willing to take to achieve its strategic (ESG) objectives;

● Balance sheet and assets under management: whether changes in the book value of asset are (partially) caused by ESG risk drivers
and how this is assessed and quantified

● Portfolio-specific analysis: whether ESG risk drivers could force the investor to adjust their forecasting, financial ratios or portfolio
composition;

● Concentrations: whether the balance sheet or the assets under management reveal concentration in regions, sectors, industries, or
products highly exposed to ESG factors and risks

● Profit and loss: whether the investor derives a significant portion of its profitability from assets that are significantly exposed to ESG
risks.
 Principles for Responsible Investment (UNPRI)

The six Principles for Responsible Investment offer a menu of possible actions for incorporating ESG issues into
investment practice.
As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role,
we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment
portfolios (to varying degrees across companies, sectors, regions, asset classes and through time).
We also recognise that applying these Principles may better align investors with broader objectives of society.
Therefore, where consistent with our fiduciary responsibilities, we commit to the following:
■ Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
■ Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
■ Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
■ Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
■ Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
■ Principle 6: We will each report on our activities and progress towards implementing the Principles.
Climate Adaptation,
Mitigation and Transition
Risks
 World Economic Forum Global Risk Report 2024

ENVIRONMENTAL RISKS COULD HIT THE POINT OF NO RETURN

World Economic Forum Global Risks Report 2024.
 Climate Tipping Points – Risk Interconnections
•Climate tipping points may trigger
socio-environmental crisis, exacerbating
existing risks.

•Survey respondents anticipate closely

interconnected cluster of environmental risks,
with significant links to critical changes in
Earth's systems.

•This encompasses biodiversity loss and

ecosystem collapse, extreme weather events,
and pollution, which could strongly contribute
to natural resource shortages.

•Beyond environmental impacts, respondents

also underscore potential socioeconomic
consequences, such as involuntary migration,
chronic health conditions, infectious diseases,
Source - https://www.weforum.org/publications/global-risks-report-2024/ and economic downturns.
Indian Scenario - Climate Risk

India is world’s third largest contributor to

GHG emissions even though its per capita
emissions are much lower than those of
developed countries i.e., 1.8 tons CO2e vs IPCC 6ᵗʰ Report - Implications for India
USA at 14.7 tons and China at 7.6 tons.
Serious consequences for India in terms of
increase in extreme events like heat waves,
70% of the country's total GHG emissions cyclones, heavy rainfall, sea level rise, floods,
contributed by six sectors: electricity
droughts.
generation, transportation, aviation, steel,
Likely to face a dichotomy of leading a proactive
cement, agriculture.
climate action which corresponds to less than 2
degree C rise by end of century, yet getting
impacted severely due to large population density
Potential loss of US$35 trillion in economic , poverty and some of its region and population
opportunities over the next five decades
having weak capacity to adapt to changing climate
due to unchecked effects of climate change.
 GOVERNMENT POLICY FOR MITIGATING CLIMATE RISK

Combating climate change through its Launched international coalitions -

several programmes and schemes including International Solar Alliance (ISA) and
the National Action Plan on Climate Coalition for Disaster Resilient
Change (NAPCC) which comprises Infrastructure (CDRI). Recently, at
COP26 in Glasgow, new initiatives
missions in specific areas of solar energy,
under CDRI and ISA, viz, Infrastructure
energy efficiency, water, sustainable
for Resilient Island States (IRIS) and
agriculture, Himalayan ecosystem, Indian Government demonstrated its Green Grids Initiative—One Sun One
sustainable habitat, green India, and commitment to prioritise climate change with World One Grid (GGI-OSOWOG), were
strategic knowledge for climate change. ambitious targets as a part of its updated
also launched.
Nationally Determined Contributions (NDC)
which includes reducing emission intensity by
45% by 2030 (from 2005 level).

Announced in June 2023 formation of the Carbon

Credit Trading Scheme (CCTS) 202383 .Governance In January , 2023, India issued first tranche of
of this market and direct oversight of its functioning its first sovereign green bonds worth INR 80
shall vest in the National Steering Committee for billion. These bonds show India’s commitment
Indian Carbon Market to be constituted by the central to expanding renewable energy production and
government. The nitty gritties of an Indian Carbon reducing carbon intensity.
Market are yet to be decided.
 INDIA’S UNION BUDGET 2024-25: A GREEN STEP
FORWARD
Climate Finance Climate-Resilient
Taxonomy Agriculture The Union Budget 2024-25
Development of a 71.52 lakh crore allocated, showcases India's commitment to
taxonomy to classify with 109 new high-yielding, sustainable development and
economic activities aligned climate-resilient crop
varieties and support for 1
climate resilience.
with climate commitments,
enhancing capital crore farmers adopting
availability for climate natural farming practices.
adaptation and mitigation.

Recognizes the importance of

public-private partnerships in
Clean Energy Initiatives Carbon Market: achieving India's development goals,
Launch of PM Surya Ghar Establishment of a carbon particularly in infrastructure,
Muft Bijli Yojana to market and a roadmap for healthcare, and urban development.
provide free electricity via 'hard to abate' industries to
These initiatives reflect India's
rooftop solar plants, and a transition from the
new policy for pumped 'Perform, Achieve and strategic approach to balancing
storage projects to integrate Trade' scheme to the 'Indian growth, employment, and
renewable energy. Carbon Market' mode. environmental sustainability
 CLIMATE-RELATED FINANCIAL RISKS
Climate-related financial risks refer to the potential risks that may arise from climate change or from efforts to
mitigate climate change, their related impacts and their economic and financial consequences.

IPCC mentions Climate Risk as “Code Red For Humanity”

 CLIMATE-RELATED PHYSICAL RISKS
Economic costs and financial losses resulting from the increasing severity and frequency of extreme
climate change-related weather events, longer-term gradual shifts of the climate, and indirect
effects of climate change.

Heatwaves
Floods

Storms
Heavy
rainfall

Droughts

Wildfires

Source: National Oceanic and Atmospheric Administration, 2024.

 TYPES OF PHYSICAL RISKS

Acute physical ⚬They are generally considered to consist of lethal heatwaves,

floods, wildfires and storms, including hurricanes, cyclones
risks
and typhoons as well as extreme precipitation.

Chronic physical ⚬These risks are generally considered to include- rising sea
risks levels, rising average temperatures, and ocean acidification.

Systemic

Non-statio Increasing
nary
Under-prepar
ed

Spatial Regressive

Nonlinear

Source: McKinsey Global Institute, 2024

 IMPACT OF PHYSICAL RISKS
Direct impact
- Exposure to businesses
- Exposure to individuals &
“Rising sea levels and a higher incidence of extreme weather
households events can cause losses for homeowners and diminish property
- Exposure to countries that face
values, leading to greater risks in mortgage portfolios.”
climate shocks

Indirect impact
- Through the effects of climate
change on the wider economy
- Through the feedback effects
within the financial system

● Increased risk of default

● Falling asset quality
● Falling asset value
● Changing prices
● Broken supply chains
 TRANSITION RISKS

Transition risk arises as markets shift towards a low-carbon economy, and derives from regulatory and
policy change, disruptive technologies, and new business models which could result in adjustments to
the value of companies, assets or investments.

Types of Transition risks

Policy changes

Shifts in market preference

Changes in norms and technology

 WHY CLIMATE RISK CANNOT BE IGNORED

What does temperature rise imply for India?

2° Celsius rise
Frequency & Sluggish
variation of • Unpredictable monsoon, already a reality
growth in bank • Will lead to major flood & drought patterns
extreme events deposits of late
(M-O-M
monsoons) 2.5° Celsius rise
• Glacial melting may destabilize north India's glacier-fed rivers and regions
• Impact on irrigation and food yields for a population expected to touch
Uninsured Millennial 1.5bn by 2030
natural disaster consumers'
losses in India trends 4° Celsius rise
(EU survey,
• Increased frequency of extreme monsoons
India) • Shifts to new climate regimes in coastal India & increased droughts in
dry-regions
TCFD Framework
TCFD Framework - Climate related Risks & Potential Financial Impacts
TCFD Framework - Climate related Risks & Potential Financial Impacts
TCFD Framework - Climate related Opportunities & Potential Financial Impacts
GLOBAL REPORTING FRAMEWORKS
GLOBAL REPORTING FRAMEWORKS
 Key Policy Milestones in India’s Climate Risk Mitigation Journey

2012 2016 2019

2007
SEBI adopts NVGs for business
RBI publishes guidance Indian Banks RBI's annual publication
responsibility report.
on corporate social Association publishes recognises climate-related
responsibility (CSR), the NVGs for financial risks.
Ministry of Corporate Affairs publishes
sustainable development responsible financing.
National Voluntary Guidelines (NVGs)
and non-financial
on social, economic and environmental
reporting. responsibilities of business.

2021
2024 2023 RBI joins Network for Greening of Financial
RBI publishes a draft on RBI publishes a Systems (NGFS).
'Disclosure framework framework for
on climate-related acceptance of green Ministry of Finance announced the formation of a
financial risks, 2024'. deposits. task force on sustainable finance.

SEBI issues new Business Responsibility and

Sustainability Reporting (BRSR) requirements.
SEBI BRSR Framework – Environmental Disclosures for Corporates

PRINCIPLE 6 - Businesses should respect and make efforts to protect and restore the environment

• Principle 6 recognizes that environmental responsibility is prerequisite for sustainable economic growth
and the well-being of society, emphasizing that environmental issues are interconnected at local,
regional, and global levels.
• Principle makes it imperative for businesses to address issues like pollution, biodiversity conservation,
sustainable use of natural resources, and climate change (mitigation, adaptation, and resilience) in a just,
comprehensive, and systematic manner.
• These efforts are aligned with UN SDG 11 for Sustainable Cities and Communities, SDG 13 for Climate
Action, SDG 14 for Life below water, and SDG 15 for Life above land.
• Encourages businesses to assess environmental impacts of their products and operations, take steps to
minimize and mitigate adverse impacts, adopt environmental practices that minimize or eliminate these
impacts, and follow the Precautionary Principle in all actions.
 ENVIRONMENTAL DATA REPORTING – BRSR PRINCIPLE 6

WATER CONSUMPTION
As per BRSR requirements sourcing, consumption, reuse and recycling of water must be sustainable in nature, and the

data should reflect companies’ initiatives towards reducing their dependence on freshwater.

Information on water Information on where

withdrawal from various the treated or untreated
sources. (Essential wastewater is being
Indicator) – Surface discharged. (Essential
water, groundwater, sea Indicator)
water, other sources
Implementation of zero On water withdrawal,
liquid discharge in the consumption and
units. (Leadership discharge in areas of
Indicator) water stress. (Leadership
Indicator)
ENVIRONMENTAL DATA REPORTING – BRSR PRINCIPLE 6

GHG Emissions

Information on Scope 1 and BRSR format requires GHG emission

Scope 2 GHG emissions information from companies because
(Essential Indicators) it wants to encourage companies to
reduce their GHG emissions, as well
as provide this information to all
Information on Scope 3 GHG stakeholders including investors.
emissions (Leadership
Indicators) The government may also use this
information for its various schemes
Information on projects such as emission trading schemes, its
national and state climate change
related to reducing GHG policies, and for preparation of its
emissions national GHG inventories.
 ENVIRONMENTAL DATA REPORTING – BRSR
PRINCIPLE 6

Air Emissions Mandatory reporting of environmental compliance data

BRSR Requires information on NOX,
SOX, PM, POP, VOC, hazardous air
Projects or offices around ecologically sensitive areas,
pollutants etc .
their status of clearance and compliance with clearance
conditions.

Waste Generation and Disposal Environmental Impact Assessment (EIA) undertaken

Waste generation and disposal has been for a project and any information regarding
covered in Question 8 of the Essential dissemination to the public.
Indicators . Important parameter as waste of
one industry can become the raw material or
fuel of another; on the other hand, waste that Complaints received or fines/penalties imposed under
cannot be used must be disposed of various environmental acts.
scientifically to avoid contamination to the
ecosystem. Data on waste management,
therefore, will help in pushing the agenda of
circularity.
 ENVIRONMENTAL DATA REPORTING – BRSR
PRINCIPLE 6
ENERGY CONSUMPTION
Energy efficiency a pathway for decarbonisation of industrial sectors and a way towards meeting the national target of net
zero emissions. BRSR report has three questions on energy consumption, sourcing and efficiency.

Information on total energy Information on energy Whether any unit of the

consumption, fuel sources – company is part of the
consumption and energy Perform Achieve and Trade
intensity. total energy consumed from (PAT) scheme and its
renewable sources performance. (Essential
The format also asks for Indicator).
details of consumption and Total energy consumed
intensity in terms of per from non-renewables. Incentive to reduce carbon
Rupee of turnover. (Essential (Leadership Indicator) emissions by using new
Indicator) technologies
 HUL BRSR 2023-24 – Climate Risk Disclosures

Rationale for identifying In case of risk, approach to Financial implications of the

adapt or mitigate risk or opportunity (indicate
the risk/opportunity
positive or negative
implications)
Climate change is a major To address climate change Programs to mitigate risk
risk, affecting business in the risks, we have committed to emanating from climate
short, medium, and long term. reducing our carbon footprint change can lead to
We face immediate physical by investing in new
incremental costs in the short
risks like extreme weather and technologies, switching to
to medium term, which can
water scarcity. Responsible renewables, and transforming
practices are crucial for be partly compensated by
factory operations. This has led
long-term value. Transitioning to a 45% reduction in energy
increased efficiency in the
to a low-carbon economy may consumption per tonne of long-term. Importantly these
bring regulatory and market production since 2008. programs would strengthen
risks, such as changing Additionally, we have expanded business resilience and
consumer preferences, higher our renewable energy use by protect long term value.
product costs, and future installing more solar plants at
government policies. our factories and offices.
 HUL BRSR 2023-24 – Climate related Disclosures

Rationale for Identifying the

Risk/Opportunity

•Rising temperatures • Climate change • Transition risks

and extreme weather impacts crop cycles include higher
can disrupt and productivity, compliance costs,
operations, damage causing supply chain regulatory penalties,
assets, and affect disruptions. and reputational risks
agricultural value • Erratic precipitation due to new
chains, leading to may limit water climate-related
production and sales availability for regulations
issues. operations and
farming.
 RBI’s Draft Disclosure Framework on Climate-Related
Financial Risks, 2024

RBI’s draft disclosure framework mandates REs to disclose information on climate-related financial risks
and opportunities, covering thematic pillars such as governance, strategy, risk management, and
metrics/targets, with a phased implementation plan.

Aligns with global standards, such as the EU’s Corporate Sustainability Reporting Directive (“CSRD”)
² and the US SEC’s climate disclosure rules,³ ensuring that India’s financial sector remains competitive and
resilient.

Significant stride towards integration of climate risks and opportunities within the Indian banking
ecosystem.

Aims to ensure consistent and comparable disclosures, mitigating the mispricing of assets and the
misallocation of capital and fostering market discipline.
 RBI’s Draft Disclosure Framework on
Climate -Related Financial Risks, 2024

Thematic Pillar Thematic Pillar

Governance Details the governance Strategy Describes the RE's strategy for
processes, controls and managing climate-related
procedures used to manage financial risks and opportunities,
climate-related financial risks including identification of risks
and opportunities. and opportunities over different
time horizons.

•Board oversight of •Identified climate-related risks and

climate-related risks and opportunities over short, medium,
opportunities. and long term.
•Senior Management's role in •Impact of these risks and
assessing and managing opportunities on business, strategy
climate-related risks and and financial planning.
opportunities. •Resilience of the strategy under
different climate scenarios.
 RBI’s Draft Disclosure Framework on Climate
-Related Financial Risks, 2024

Thematic Pillar Thematic Pillar

Risk Outlines the processes to
Metrics and
Details performance metrics
Management identify, assess, prioritize, and Targets related to climate-related
monitor climate-related financial risks and opportunities,
financial risks and opportunities including progress towards
and their integration into the climate-related targets.
overall risk management
framework.
• Policies and processes for
identifying, assessing, prioritizing • Metrics used to assess
and monitoring climate-related climate-related risks and
financial risks. opportunities.
• Processes used for managing • Scope 1, Scope 2' and Scope 3
climate-related risks. GHG emissions- Targets for
• Integration of climate-related managing climate-related risks
risk management into overall risk and progress against these
management processes. targets.
 RBI’s Draft Disclosure Framework on Climate-Related Financial Risks, 2024

Applicability

These guidelines are applicable to all scheduled commercial banks (SCBs) (excluding local area banks, payments banks and regional rural
banks), tier-IV primary (urban) co-operative banks (UCBs), All-India Financial Institutions (AIFIs) and top and upper layer non-banking
financial companies (NBFCs). Other entities may voluntarily make these disclosures.

Timelines

Recognising that the disclosure requirements for REs would require time to develop internal policies and reporting mechanism, RBI has
provided staggered approach for the adoption, with additional time provided for disclosing data related to ‘metrics and targets’. Tier-IV
UCBs are also given an additional year for the adoption of the guidelines. The implementation timeline is outlined below-

REs Governance, strategy and risk management Metrics and targets

SCBs, AIFIs, top and upper layer NBFCs FY 2025-26 onwards FY 2027-28 onwards

Tier-IV UCBs FY 2026-27 onwards FY 2028-29 onwards

State Bank of India sustainability Report 2023-24
State Bank of India sustainability Report 2023-24
 NET ZERO JOURNEY FOR INDUSTRIES
Why are actions
towards Net Zero Identifies
important? efficiency •As India aims to achieve Net Zero emissions by
improvements
2070, industries must play a pivotal role in this
Facilitates Supports transition.
corporate participation
sustainability in carbon •By adopting cleaner technologies, optimizing
reporting markets energy use, electrification of fossil-based energy
Informs policy
and strategic sources, material circularity and implementing
decision making sustainable practices, the industrial sector can
significantly reduce its carbon footprint.
Increases Enhances
investor reputation •This effort is essential for aligning economic
confidence and brand growth with environmental goals, ensuring a
and manages value sustainable future for the country.
risk Contributes to
global climate
goals
 NET ZERO COMMITMENTS – INDIAN CORPORATES

Infosys Mahindra Group Tata Consultancy Wipro Hindustan Unilever

Ambitious science-based Adopted SBT to cut Services Approach includes improving Limited (HUL)
targets to reduce its GHG Aims to reduce GHG energy efficiency in its facilities, Adopts sustainable sourcing,
down its carbon
expanding the use of renewable reducing carbon footprint of
emissions, focusing on emissions across emissions by enhancing
energy, and reducing waste.
enhancing energy various businesses. Key energy efficiency in its its products, improving
Implemented sustainable
efficiency, increasing use initiatives include operations and increasing energy efficiency in its
practices in its supply chain and
of renewable energy, and use of renewable energy. works with suppliers to meet manufacturing processes.
adoption of renewable
promoting sustainable Invested in their own sustainability goals. Substantial investments in
energy, implementation
operations. Implemented energy-efficient Integrated sustainability strategy renewable energy and
of energy-efficient
energy-efficient infrastructure and extends to its products and engages with consumers to
manufacturing services, helping clients achieve
technologies in data technologies. Develops promote sustainable
processes, promotion of their sustainability objectives. consumption practices.
centers and office green IT solutions for its
buildings. electric vehicles. clients.
 PROFESSIONAL OPPORTUNITIES

Annual Reports and Metrics. Control climate-related opportunities and

• Conduct gap analyses and benchmarking. dangers
• Examine climate narratives in yearly reports • Map direct and indirect climate hazards along the value
• Create climate-related measurements and targets. chain and regions
• Report on green bonds and climate impact investing. • Analyze processes to detect and assess climate risk
• Develop tools and methods for monitoring and • Enhance climate-risk management
reporting metrics

Formulating a climate strategy Building capacity and governing

• Assist businesses in developing a strategic response to ⚬Integrate climate change into operational, governance, and
climate change. risk frameworks
• Use climate scenario analysis to address operational, capital,
policy, stakeholder, and people issues over various ⚬Strengthen organizational, executive, and board capabilities
business horizons. ⚬Climate related parameters in ESG ratings

Analysis of scenarios GHG Accounting and Assurance

⚬Utilize recent advances in climate science to understand risks GHG Accounting – Scope 1, 2 and 3
and opportunities ISAE 3410 assurance
⚬Identify impacts across the value chain and quantify TCFD and CDP reporting
financial effects at asset and company levels
⚬Integrate climate risk into strategic solutions and
investment plans.
 37

Thank You