By – Sakshi Tripathi, United University
Abstract
Climate change presents a material risk to businesses, compelling corporations to evaluate and disclose environmental risks in their operations and financial reporting. This article explores the evolving legal obligations of Indian corporates concerning climate risk disclosures, grounded in statutory mandates, judicial pronouncements, and global best practices. It analyses the current Indian regulatory framework, including the Companies Act, SEBI guidelines, and ESG reporting mechanisms, and compares them with international standards. The article concludes with suggestions to strengthen legal mandates to ensure transparency and sustainability.
Introduction
In the 21st century, climate change has transitioned from being a purely environmental concern to a material financial risk affecting corporate performance and long-term viability. From extreme weather events disrupting supply chains to regulatory transitions influencing market dynamics, climate change poses complex, multifaceted threats to businesses. Globally, financial institutions, investors, and regulators are demanding greater transparency in how companies identify, assess, and manage such risks.
Climate risk disclosure refers to the systematic communication by companies of their exposure to climate-related threats and their strategies to mitigate them. These disclosures not only help in building investor confidence but also drive better governance and sustainable long-term growth. As environmental, social, and governance (ESG) considerations gain prominence, climate risk disclosures are evolving from voluntary corporate social responsibility (CSR) gestures to a regulatory necessity.
India, while not immune to global trends, is uniquely placed. Its fast-growing economy, climate vulnerability, and expanding corporate sector make climate-related risks particularly pressing. Legal and regulatory measures—such as the Business Responsibility and Sustainability Reporting (BRSR) mandated by SEBI—have been introduced to bring about structural changes in how companies approach climate governance. However, gaps in enforceability, standardization, and corporate awareness persist.
This article aims to explore the legal landscape surrounding climate risk disclosures in India. It traces the statutory, regulatory, and judicial underpinnings of these obligations, evaluates their sufficiency against international benchmarks, and recommends reforms to ensure Indian corporates are not only compliant but also climate-resilient.
To the Point (Precise and Clear Discussion)
What are Climate Risk Disclosures?
These are public declarations made by corporations concerning:
∙ Physical risks (e.g., extreme weather events affecting operations),
∙ Transition risks (e.g., policy shifts, carbon pricing, technology change), and ∙ Opportunities (e.g., green investments).
Disclosures typically involve the identification, assessment, and management of these risks and their financial implications.
Legal Jargon (Wherever Applicable)
∙ Materiality: The threshold at which climate risk becomes significant enough to influence the decisions of stakeholders.
∙ ESG (Environmental, Social, Governance): A framework for evaluating non-financial risks and opportunities.
∙ Sustainability Reporting: Disclosing information about an organization’s environmental, social, and governance performance.
∙ Greenwashing: Misleading information or false claims about a company’s environmental practices.
The Proof: Statutory and Regulatory Framework in India
1. Companies Act, 2013
While not explicitly mandating climate disclosures, the Act requires directors to report on risk management in the Board’s Report (Section 134), which includes environmental risks.
2. SEBI Guidelines on ESG and BRSR
∙ Business Responsibility and Sustainability Reporting (BRSR), mandated by SEBI from FY 2022-23 for the top 1000 listed entities, requires disclosure of:
o Energy consumption and GHG emissions
o Climate change adaptation and mitigation strategies
o Transition risk assessments
∙ BRSR is aligned with global frameworks like TCFD (Task Force on Climate-related Financial Disclosures) and SASB (Sustainability Accounting Standards Board).
3. National Guidelines on Responsible Business Conduct (NGRBC)
Issued by the Ministry of Corporate Affairs, these voluntary principles encourage environmental sustainability reporting, forming the foundation of BRSR.
4. Environmental Laws
Acts like the Environment Protection Act, 1986, and Air (Prevention and Control of Pollution) Act, 1981 impose environmental compliance duties, indirectly pressuring disclosures, especially for polluting industries.
5. SEBI Circular (May 2021)
Introduced BRSR on a voluntary basis for FY 2021–22 and mandatory from FY 2022–23. Failure to comply could amount to regulatory scrutiny or loss of investor confidence.
Judicial Perspective: Case Laws
1. M.C. Mehta v. Union of India, AIR 1987 SC 1086
The Supreme Court recognized the Polluter Pays Principle and enforced corporate accountability for environmental degradation. This laid the foundation for internal corporate risk evaluation and disclosures.
2. Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 SCC 212 Stressed upon corporate liability for environmental damage and long-term risks, reinforcing the need for proactive risk disclosures.
3. Vellore Citizens’ Welfare Forum v. Union of India, (1996) 5 SCC 647
The doctrine of Sustainable Development was upheld, placing an implicit duty on corporations to report environmental risks transparently.
International Influence and Comparative Analysis
∙ TCFD Recommendations: Voluntary global standards focusing on governance, strategy, risk management, and metrics related to climate risks.
∙ EU Corporate Sustainability Reporting Directive (CSRD): Mandatory climate disclosures for large companies from 2024.
∙ U.S. SEC Proposal (2022): Proposes mandatory climate risk disclosures in annual reports.
India’s BRSR framework is modeled on these principles but remains limited in scope and enforceability.
Challenges in Implementation
∙ Lack of uniform standards
∙ Corporate reluctance and greenwashing
∙ Inadequate regulatory oversight
∙ Data and skill gaps in identifying and quantifying risks
Suggestions for Reform
1. Mandate TCFD-aligned disclosures for all listed companies.
2. Introduce climate stress testing as part of corporate audits.
3. Incentivize green investments and disclosures through tax or ESG-linked financing. 4. Create a dedicated Climate Risk Regulator under SEBI/MoEFCC.
5. Capacity building and training for corporate risk teams.
Conclusion
The urgency of climate change demands a radical transformation in corporate governance frameworks, and climate risk disclosures lie at the heart of this shift. In India, the legal regime for such disclosures is in a state of evolution. While recent regulatory initiatives like BRSR mark a positive step forward, they remain limited in scope and applicability, primarily targeting top-tier listed entities. Moreover, enforcement mechanisms are still embryonic, leaving significant room for corporate greenwashing and underreporting.
As international standards mature—exemplified by TCFD, the EU’s CSRD, and emerging SEC guidelines in the U.S.—India must not lag. Strengthening domestic legislation to mandate comprehensive, forward-looking climate risk disclosures across sectors and company sizes is imperative. This includes embedding climate risk reporting within the Companies Act, enhancing
SEBI’s enforcement authority, and fostering inter-agency coordination with the Ministry of Environment and financial regulators like the RBI.
Additionally, disclosures must be more than a compliance exercise—they must translate into actionable insights that inform strategic decisions. This necessitates capacity-building initiatives, development of sector-specific guidelines, and integration of climate analytics in financial audits and enterprise risk management.
In conclusion, climate risk disclosure is no longer a matter of reputational management but of legal accountability and business continuity. For Indian corporates to thrive in an increasingly climate conscious global economy, embracing legally mandated, transparent, and verifiable climate disclosures is not just prudent—it is indispensable.
