Leading the climate charge: India sets hard targets at COP26

At the ongoing COP 26 Summit in Glasgow, India assured its cooperation to tackle climate change in earnest. Prime Minister Narendra Modi announced a few ambitious targets at the Summit, most of which have a 2030 deadline. These include raising non-fossil fuel-based energy capacity to 500 GW, lowering total projected carbon emission by one billion tonnes, meeting 50% of the country’s energy needs through renewable sources and reducing the carbon intensity of the economy to sub 45% level.

The last target, which is the most ambitious of all, is a commitment to achieve net-zero emissions by 2070. For a fossil-fuel dependent India, to achieve such targets would require a humongous amount of investment. Availability of finance is the key differentiator between the developed nations and India.  Therefore, accessing all forms of public and private capital as well as acquiring technological know-how from the developed nations would be the first step in meeting India’s newly set targets. India has been vociferously demanding both –climate finance and technology transfer-- to hasten its transition to a low carbon economy. The Prime Minister was very clear in reminding the developed countries of their duties to provide climate finance worth USD 1 trillion at the earliest to the developing nations.

We know that the Intergovernmental Panel on Climate Change (IPCC) has been pressing to become net-zero by 2050 to limit the rise in the overall temperature to under 1.5 degrees C, and to eventually go back to pre-industrial levels by 2100. Net-zero means the amount of greenhouse gas emitted is equal to the amount taken out from the atmosphere. It isn’t easy to get on to the climate-change bandwagon, especially when the associated risks can differently impact the economies of different geographies and sectors. At present India mostly runs on fossil fuel, despite making stupendous progress on tapping renewable energy sources. India’s fresh commitment at Glasgow to achieve the 500 GW non-fossil fuel target by 2030 translates to the heavy-duty installation of solar, wind and nuclear energy. It also means the transition would affect the livelihood of million-plus fossil fuel-dependent workers unless there is a well-meaning plan to rehabilitate them.

A number of stakeholders have to rise to this new challenge. Policymakers, regulators, financial institutions, public markets and boards & shareholders -- all included. A paradigm shift in assessing the changes required to meet this target is called for.  While the transition to low carbon or net-zero economy creates risks as well as opportunities, it is crucial that all stakeholders follow a robust framework that can measure and screen climate risks before agreeing to finance projects.  Appraising, measuring and dealing with the climate impact of industries and businesses will now have to take centre stage in stakeholder conversations.

This is where the role of regulators and policymakers become important. The policymakers are aware of the risks –both physical and transitional and have responded to the need to guard the financial ecosystem while attempting to mitigate climate-related risks associated with businesses. The implementation of Business Responsibility and Sustainability Report (BRSR) rules by market regulator SEBI is a case in point. While the BRSR guidelines have tried to address the issue of green-scenario analysis for the top 1000 listed companies, there is a clear need for a deeper understanding of risk management to support the transition to low carbon or net-zero economy. Both the financial institutions and the regulators have to work hand-in-hand to draw a sustainable roadmap, beginning with adequate disclosures and self-reporting.

Financial modelling of climate risks needs to be strengthened and supervisory tools for a more rigorous analysis of climate risks from businesses need to be reinforced. To succeed, India must move towards a more informed and considered disclosure system. The self-reporting is expected to bring awareness to the boards and also help develop a competitive environment for accessing the financial markets. Financial institutions and markets may well be driven by investors, countries and international institutions to encourage enterprises that meet, if not exceed, the standards that are required to be adhered to for meeting the country and the world’s climate agenda.

In the end, we have to understand that combating climate change is a priority. Despite its several handicaps, India has offered to march along with its peers in the developed world to achieve climate goals. The stakeholders i.e., the government, regulators and businesses will have to ensure that the transition to clean energy takes place through the development and implementation of sustainable investment policies and financing the cost of transition is as important as the transition itself.

The author is a partner at law firm Cyril Amarchand Mangaldas. Views expressed are of the author, and do not necessarily reflect the views of Cyril Amarchand Mangaldas or Business Standard.