The financial risk posed by Janet Yellen's climate agenda on India Inc

The US may be way behind the EU in adopting a climate change agenda but could be driving it soon. Although it is just coming into the game, it has the money to demand a change

If the US and the EU keep pushing the climate agenda beyond the current goals as set by the Paris accord of 2015, how much costly would it turn out for India Inc? For instance, could there be a pressure on companies worldwide to disclose some of those numbers the way the Sarbanes Oxley act did a few decades ago to force board rooms to report honest numbers in the public. 

As of now, Indian regulators do not ask companies to report the financial impact they might face from climate risks. Those numbers are consequently not available in the annual reports or as information to the stock exchanges. Voluntarily, it might be difficult for a listed company to offer such numbers as those shall be read as forward guidance. 

A ballpark number is $100 billion or about Rs 7.1 trillion for India Inc according to Damandeep Singh, Director of CDP India, a non-profit organisation that tracks the extent of global disclosures for investors, companies and cities among others, to manage their environmental impacts. His report was issued in March 2021. It adds up the response by 60 of the top 200 Indian companies on the BSE who responded to a CDP survey on how much would the financial impact be on them from having to factor in climate change.The number of companies who responded have gone up 17 per cent in one year. 

The sum is substantial, about a third of what the National Investment Pipeline drawn up by the finance ministry envisages the private sector shall spend for infrastructure in the same five year span.

Among those who threw in the big numbers are the larger banks, said Singh. “Even now most companies struggle to quantify climate risks. Once companies begin to really evaluate what they need to spend on pro-climate investments these figures shall go up multifold”.

It might be a good idea to do such an exercise, says Tirthankar Patnaik, chief economist at the National Stock Exchange. Some demand for disclosing those numbers could arrive soon as the new US administration is ratcheting up the pressure to adopt pro-climate issues, massively. President Joe Biden has described it as a whole-of-government approach to climate change. 

His treasury secretary Janet Yellen has, therefore, made the climate agenda the top priority for her department. She has not just spoken about climate change almost every day at each meeting with finance ministers, at each multilateral forum, but is also taking steps to make those utterances carry sting. This week she set up a Climate Hub within her department for what she described as “coordinated climate policy strategy” and appointed a Climate Counselor to head it. This post did not exist in the US government. It is different from the role John Kerry is playing as US Special Presidential Envoy for Climate. 

Some of the pitch is no doubt optics meant to cut the slack for the four years that the US was absent from the climate talks under former President Donald Trump, when EU and Asia, noticeably both China and India took the lead. But it has costs for Asian countries, which now are the largest fund raisers globally. 

Expectedly it has raised hackles within the Indian government. Sanjeev Sanyal, Principal Economic Advisor, in the finance ministry last week described the moves to ramp up climate agenda by the USA as the risk of Green Colonialism. He said it was an attempt to push for a ‘green recovery’ from Covid with stringent conditions. 

The Indian government has reasons to be concerned. Even without the disclosures, the US and EU pressure could raise costs for Indian companies tapping into global markets. Already the US treasury publishes a list of countries that it claims manipulate their currency. The report has been published since 2016 and India has begun to feature in the list as it maintains a trade surplus with the US. 

A department within the Treasury will try to justify its role through similar tactics. Its agenda is quite transparent. The climate hub shall be expected to promote “globally consistent approaches to climate-related financial risks”. It will link “Understanding and mitigating the risks that climate change poses to the stability of the US and global financial system and economy”. It packs quite a trade distorting punch, said a senior India government official. 

Would the Indian companies be therefore well off getting ready to provide such data? Patnaik said there needs to be a debate on it. While he did not say so it is clear that so long as Indian disclosure requirements do not ask companies to spell out their climate mitigation agenda it will not happen. This is different from the sum companies lay out as part of their corporate social responsibilities. “Some companies might make comments in high risk sectors but we are far from seeing committed numbers,” Patnaik said. Indian companies, though, have a good tale to tell. The CDP data shows 58 companies in the list are pricing carbon or plan to do so within the next two years. 

As Singh says, the US may be several steps behind the EU in adopting a climate change agenda but they could drive it soon. “It is only now they are coming into the game, but they have the money to demand a change.”