India has emerged as a key player in the global fight against climate change, spearheading initiatives and advocating for ambitious action on the world stage. Hence, it is crucial for Indian businesses to play an important role in implementing this meaningful change.

With unprecedented environmental challenges from extreme weather events to biodiversity loss, the impacts of climate change are far-reaching. The human-induced climate change is being considered as a global emergency. The global community is increasingly recognizing the urgent need for action to combat climate change. To tackle climate change and its impact, world leaders entered into the Paris Agreement. One of the long-term goals agreed under the Paris Agreement is to “reduce global greenhouse gas emissions to hold global temperature increase to well below 2°C above pre-industrial levels and pursue efforts to limit it to 1.5°C above pre-industrial levels.”

India has emerged as a key player in the global fight against climate change, spearheading initiatives and advocating for ambitious action on the world stage. Hence, it is crucial for Indian businesses to play an important role in implementing this meaningful change, and one powerful tool at their disposal is Environmental, Social, and Governance (ESG) disclosure. Companies must ensure that their ESG disclosures are accurate, reliable, and relevant, and that they align with internationally recognized standards such as the Global Reporting Initiative (GRI) or the Task Force on Climate-related Financial Disclosures (TCFD).

The correlation between ESG disclosure and climate action is profound and multifaceted.

Why climate literacy is important among Indian businesses for ESG disclosures!

Climate literacy refers to the understanding of climate change’s impact and the solutions to this in the form of adaptation and mitigation. Such literacy will play a crucial role in helping businesses make informed decisions and make meaningful decisions on ESG disclosure.

Identifying and managing climate-related risks: Climate literacy equips businesses with the knowledge and tools to identify and assess climate-related risks, such as physical risks (e.g., extreme weather events, sea-level rise), transition risks (e.g., policy and regulatory changes, market shifts), and reputational risks (e.g., public perception, stakeholder expectations). By understanding these risks, appropriate strategies can be devised to combat the consequences and impact and safeguard the long-term viability and resilience of businesses.

Integrating climate considerations into business strategy: Climate literacy enables businesses to integrate climate considerations into their overall business strategy, thereby, aligning their operations with sustainability goals. This includes setting targets for reducing greenhouse gas emissions, adopting sustainable supply chain practices, promoting circular economy principles, and integrating climate risk management into financial planning and investment decisions. By integrating climate considerations into their business strategy, businesses can improve their overall ESG performance and create long-term value for their stakeholders.

Engaging stakeholders on climate issues: Climate literacy empowers businesses to engage with stakeholders—including investors, customers, employees, local communities, and regulators—on climate-related issues. This includes communicating climate-related risks, opportunities, and actions in a transparent and credible manner, seeking stakeholder input on climate-related initiatives, and responding to stakeholder concerns and expectations.

Building climate-resilient operations: Climate literacy helps businesses build climate-resilient operations by adopting measures to adapt to the impacts of climate change. This includes implementing climate risk assessments, developing contingency plans for extreme weather events, diversifying supply chains to reduce dependencies on vulnerable regions, and investing in climate-resilient infrastructure and technologies, thereby helping business continuity.

Enhancing reporting and disclosure on climate performance: Climate literacy can enable businesses to enhance their reporting and disclosure practices on climate performance, which is a crucial aspect of ESG reporting. This includes transparently reporting on greenhouse gas emissions, climate-related risks and opportunities, climate mitigation and adaptation strategies, and progress towards climate targets.

Implementing environmental management systems: Indian businesses can adopt internationally recognised environmental management systems such as ISO 14001 to systematically identify, manage, and reduce their environmental impacts. This includes conducting regular environmental audits; setting targets for reducing resource consumption, waste generation, and emissions; and implementing measures to comply with environmental regulations.

Investing in renewable energy: Indian businesses can transition towards renewable energy sources as a way to mitigate their carbon footprint and reduce their environmental impact. With India’s proactive renewable energy initiatives and favourable regulatory environment, businesses can leverage opportunities in renewable energy, such as setting up solar or wind power plants, investing in green energy technologies, or procuring renewable energy through power purchase agreements (PPAs). This not only helps in reducing greenhouse gas emissions but also contributes to India’s renewable energy goals and can result in long-term cost savings.

Adopting circular economy principles: Indian businesses can also leverage regulations such as the Plastic Waste Management Rules, 2016, which mandate extended producer responsibility, to implement circular economy practices in their operations. By adopting circular economy principles, businesses can reduce their environmental impact and create a more sustainable business model.

Investing in employee training and development: By building the capacity of employees to understand and address environmental issues, businesses can foster a culture of sustainability and empower their workforce to contribute to the company’s ESG goals.

Value-chain resilience and sustainability: Addressing climate issues and investing in sustainability will also help businesses create value-chain resilience and help create sustainable value-chains. The existing supply-chain frameworks can hardly withstand the uncertainties brought about by global climate change. Indian businesses, therefore, need to think about newer pathways to bring about efficiency and create more resilient supply chains by enhancing their sustainability standards.

ESG Disclosures and Climate Change

As a part of the ESG framework, the Indian Stock Exchange Regulatory Authority –SEBI has introduced the Business Responsibility and Sustainability Report (“BRSR”) reporting which is mandatory for the top 1,000 listed companies by market capitalization. The positive impact of ESG disclosure on climate change extends beyond individual companies to the broader economy and society.

Conclusion

To sum up, in the context of a rapidly changing environment and regulatory focus, an organization’s ability to transition towards strong compliance as well as higher levels of ESG maturity will have a lasting impact on their short and long-term sustenance in the market. Riding this wave of opportunity can also enable organisations to generate financial, economic, and reputational value.

– The authors of this article are Rajesh Narain Gupta, Founder & Chairman, and Manan Pant, Associate at SNG & Partners.