ESG Reporting

Cultivating Resilience: The Crucial Role of Climate Risk Disclosure for Businesses

by with No Comment SustainabilitySustainability Reporting

Climate risk disclosure is essential for businesses amid growing climate challenges. India improves ESG reporting with SEBI regulations.

Understanding the Business Impact of Climate Change: The Growing Significance of Climate Risk Assessment and Disclosure

Amidst the rising temperatures, erratic monsoons, and the ever-increasing spectre of climate-related disasters, businesses face an imminent threat that transcends geographical boundaries. Failing to grasp the profound implications of climate change, companies risk not only disruptions in their supply chains but also face potential shifts in policies, damage to brand reputation, and a myriad of other challenges that may prove insurmountable without proactive climate risk assessment and disclosure.

Climate risk refers to the potential adverse impacts and consequences that climate change and extreme weather events pose to various aspects of society, the economy, and the environment. These potential risks are mainly linked to the shifting climate patterns and the disruptions they may generate. According to the Task Force on Climate-related Financial Disclosures (TCFD), climate risks can be divided into two categories – risks related to the transition to a lower-carbon economy and risks related to the physical impacts of climate change. Transition risks include policy and legal risks, technology risks, market risks and reputation risks. Physical risks on the other hand include acute risks (event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods) and chronic risks (longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.) [1] In order for companies to be well informed of the risks posed to their business, climate risk assessment and climate-related disclosure are of urgent importance. Based on a business priorities, there are various frameworks that can be used to disclose climate-related information. The widely used ones are TCFD, Global Reporting Initiative (GRI), CDP, SASB Standards (Sustainability Accounting Standards Board), and the India-centric Business Responsibility and Sustainability Reporting (BRSR).

As nations approach their Net Zero goals, the significance of non financial disclosures has heightened in the contemporary business landscape. The increasing emphasis on these disclosures is driven by investors and stakeholders urging companies to provide more comprehensive information regarding their sustainability and environmental, social, and governance strategies. Several legislative measures mandating non-financial disclosures are currently in preparation or have already taken effect, including:
● Regulation (EU) 2020/852 of the European Parliament and the Council, implemented in July 2020, establishes a framework for promoting sustainable investment (EU Taxonomy Regulation).
● The Corporate Sustainability Reporting Directive (CSRD) and the Directive onCorporate Sustainability Due Diligence Directive (CSDDD).
● SEBI mandated BRSR for the top 1000 listed companies in India [3]

India’s Evolving ESG Reporting Landscape: Progress, Regulation & Rising Global Recognition

According to a report by EY, Indian companies are trailing behind in both coverage and quality of reporting compared to global averages. Nevertheless, the number of Indian companies responding to disclosure platforms such as CDP is increasing. Notably, 2020 was the first year Indian companies were featured on the CDP A-List. A report by EY recorded a significant year-on-year improvement in coverage, which was up to 65% in 2022 from 49% in 2021 [4]

The rise in reporting is undoubtedly connected to recent regulations issued by the Securities and Exchange Board of India (SEBI). These regulations mandate the top 1,000 companies in the country to generate a business responsibility and sustainability report starting from the financial year 2022-2023. For the preceding financial year (2021-2022), companies were encouraged to voluntarily create these reports.[5]

As of July 2023, SEBI mandated the top 150 listed companies to seek assurance for their BRSR Core reporting. BRSR Core comprises key indicators across the 9 ESG principles. Mandatory assurance will gradually be required by the top 1000 listed companies by 2026-27. Further, listed companies must include value chain disclosures in their Annual Report, following the BRSR Core. The value chain should cover the major partners both upstream and downstream of the listed entity, accounting for 75% of its purchases and sales by value. This positions India in a good place with respect to the assurance of ESG reporting [10]

S&P Global ESG Scores raw data, based on the 2022 S&P Global Corporate Sustainability Assessment (CSA) reports about one-quarter of Indian companies (24%) have a plan to adapt to the physical impacts of climate change, compared with the global average of 21%. Further, nearly 40% of India-headquartered companies conduct physical risk assessments.[6]

Navigating ESG and Climate Disclosure Challenges In India: Strategies, Barriers and Opportunities

Companies are grappling with challenges in establishing effective systems for tracking and reporting crucial metrics, with regulatory mandates often necessitating collaboration with various protocols or frameworks to ensure meaningful disclosures. Carbon emission disclosures, for example, require expertise in GHG protocols and carbon accounting mechanisms. However, many Indian businesses lack the required expertise and capacity for these demanding processes, which can lead to reporting fatigue. Nevertheless, innovative approaches and strategic partnerships can facilitate sustainability integration, ultimately enhancing long-term growth prospects. India faces a multitude of hurdles in embracing Environmental, Social, and Governance (ESG) principles due to factors spanning regulatory, economic, cultural, and infrastructural realms. These challenges encompass gaps in ESG awareness and education, difficulties in aligning ESG with business strategies, a short-term financial focus, concerns about data quality and availability, issues related to materiality assessments, regulatory fragmentation, financial
burdens linked to ESG adoption, cultural and social factors, supply chain complexities, and
the risk of “greenwashing.” However, despite these challenges, India is witnessing growing interest in ESG adoption, with businesses increasingly recognizing the potential benefits, including improved reputation and better access to capital. To overcome these hurdles, businesses must set clear ESG
goals, develop comprehensive ESG strategies, gain stakeholder support, provide ESG training, and collaborate with ESG experts. These efforts can position Indian businesses for long-term success and align them with global sustainability goals and frameworks. Moreover, ESG practices offer advantages such as alignment with sustainable development goals, access to green finance, enhanced innovation and efficiency, positive societal and environmental impact, and improved brand value.

Efforts to mitigate and adapt to climate change can produce opportunities in the form of resource efficiency and cost savings, low-carbon energy transition, new products and services, and supply chain resilience. According to CDP in 2021, 87% of the responding companies identified climate-related opportunities as having the potential to make a substantive financial or strategic impact on their business performance.[7]

India’s commitments to net-zero targets require more companies to come forward and set climate goals supported by adequate disclosures for transparency and accountability. Businesses are a very important part of climate action efforts and need to emerge as active collaborators in this conversation. Progress is visible, but the pace is very slow and thus the targets are at risk of being too ambitious and not being achieved in the given timeframe.

Reach out to Carbon Mandal by writing to us at info@carbonmandal.com to start your ESG reporting journey!

List of references:

  1. Task Force on Climate-related Financial Disclosure. (2017) Recommendations of the Task Force on Climate-related Financial Disclosures.
    https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf .
    Accessed 11th October 2023
  2. PricewaterhouseCoopers. (2022) Task force on climate-related financial disclosures – 2022 Status report.
    https://www.pwclegal.be/en/news/task-force-on-climate-related-financial-disclosure
    s—2022-statu.html.     Accessed 11th October 2023
  3. PricewaterhouseCoopers. ESG reporting and preparation of a Sustainability Report.
    https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/es
    g-reporting.html.     Accessed 12th October 2023
  4. Ernst & Young. (2021) Global Climate Risk Disclosure Barometer.
    https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/assurance/ey-if-the-climate-disclosures-are-improving-why-isnt-decarbonization-accerlerating.pdf
    Accessed 12th October 2023
  5. Ernst & Young. (2022) Global Climate Risk Disclosure Barometer.
    https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/climate-change/e
    y-global-climate-risk-barometer-report-v2.pdf    . Accessed 18th October 2023
  6. Jennifer Laidlaw, S&P Global. (2023) With Physical Climate Risks Increasing in India, Adaptation Strategies Take Priority.
    https://www.spglobal.com/en/research-insights/featured/special-editorial/look-forw
    ard/with-physical-climate-risks-increasing-in-india-adaptation-strategies-take-priority .
    Accessed 13th October 2023
  7. CDP. (2022) Disclosure: Imperative for a Sustainable India.
    https://cdn.cdp.net/cdp-production/cms/reports/documents/000/006/164/original/
    CDP_AnnualDisclosureReport2021_V7.pdf?1663682392 .     Accessed 17th October2023
  8. European Financial Reporting Advisory Group. How To Improve Climate-Related Reporting.
    https://www.efrag.org/Assets/Download?assetUrl=/sites/webpublishing/SiteAssets/
    European%20Lab%20PTF-CRR%20%28Supplement%201%29.pdf&AspxAutoDetectCo
    okieSupport=    1 . Accessed 18th October 2023
  9. KPMG. (2022) Challenges and opportunities in ESG reporting and assurance.
    https://kpmg.com/xx/en/blogs/home/posts/2022/12/challenges-and-opportunities-i
    n-esg-reporting-and-assurance.html .     Accessed 19th October 2023
  10. Security Exchange Board of India. (July 2023) Circular No. – SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122.
    https://www.sebi.gov.in/legal/circulars/jul-2023/brsr-core-framework-for-assuranceand-esg-disclosures-for-value-chain_73854.html . Accessed 26th October 2023.
Decarbonization of the Indian Steel Industry

Decarbonization of the Indian steel industry: An Opportunity

by with No Comment DecarbonizationSteel IndustrySustainability

Decarbonization of one of the major GHG emitting industries using technological innovations to reduce CO2 emissions

Decarbonization has become an imperative aspect of mitigating the effects of climate change. Industrial activities are responsible for 1/3rd of the greenhouse gas (GHG) emissions and among this sector, the Steel industry contributes around 9% of the total GHG emissions (Zhang, Jiao, Zhang, & Guo, 2021). A report by the World Steel Association states that in the year 2020, 1.89 tonnes of CO2 emission was contributed from each tonne of steel manufactured (World Steel Association, 2022). The rising values of GHG emissions are leading to climate change and are greatly affecting countries in the global south. India is no exception, the changing patterns of monsoon, reduced glaciers in the Himalayas and many more impacts are observed as a result of climate change (Mallett & Pal, 2022).

Steel is an integral input material in industries like construction, automobile manufacturing etc. The steel industry due to its high dependence on carbon-based technologies is considered a hard-to-abate sector in terms of sustainability due to its high requirement of energy and resources (Mallett & Pal, 2022). The steel industry in India contributes to nearly 2% of its GDP making it a significant sector in economic development (Sun, 2023). India being the second largest producer of steel is committed to decarbonization with a short-term focus on reducing carbon emissions by FY 2030 through the use of renewable energy and promoting energy and resource efficiency. The medium and long-term focus areas for 2047 and 2070  are utilising green hydrogen for steel manufacturing, Carbon capture utilisation & storage (CCUS) and alternative innovations which could assist in achieving the transition to net zero respectively (PIB Delhi, 2023).

Decarbonization Technologies for the Steel Industry

Before we dwell on the de-carbonization technologies for the steel industries, let us understand the key processes prevalent in the industry. The dominant processes for the production of steel are Blast furnace-basic oxygen furnace (BF-BOF), Direct reduced iron (DRI) and Electric arc furnace (EAF). BF-FOF involves reducing iron ore to pig iron in a blast furnace using coal products. The steel is then made from the hot iron which is charged to a basic oxygen furnace. The DRI process reduces solid iron ore by reacting at a temperature below the melting point. Coal or natural gas are the sources of reducing gas. DRI sponge iron requires additional processing, generally EAF. EAF uses an electric arc to heat charged pig iron, steel scraps or sponge iron with electricity (Fan & Friedmann, 2021). 

Studies suggest that traditional energy-efficient measures can only reduce around 25-40% of average CO2 emission per tonne of crude steel produced. Hence, technologies like using hydrogen or biomass as reducing agents, and carbon capture utilization and storage (CCUS) are needed to further reduce the emissions (Muslemani, Liang, Kaesehage, Ascui, & Wilson, 2021). Production of green steel using direct hydrogen reduction involves reducing iron ore in a hydrogen-based shaft furnace and EAF is used to cast the reduced iron. Green hydrogen produced via electrolysis i.e., Hydrogen separated from oxygen in water using electric current and electricity required for electric arc casting should be from renewable resources to produce Green steel (Conejo, Birat, & Dutta, 2020).  Tata Steel recently initiated the use of hydrogen in their blast furnace and JSW Steel has plans to commission a green hydrogen-based steel plant by 2025. Another innovation is the usage of biomass integrated with blast furnace-basic oxygen furnace. The biomass could be used as a replacement for fossil fuels at the coke-making stage, sintering process or directly in blast furnaces. A study estimated that the use of biomass could reduce around 58% of CO2 emissions (Mandova et al., 2018).

India – A Potential Green Steel Leader

Decarbonization technologies have the potential to impact the emission trajectories significantly and could help in mitigating the higher costs of climate change. The steel manufacturing sector is on the threshold of change with new innovations like green hydrogen and India, one of the top steel producers, has the potential to be a green steel leader. Several industries have already begun initiatives to produce green steel and with the support of regulatory authorities, the green steel industry would develop successfully. Decarbonizing technology to produce green steel with less greenhouse gas production would build a cleaner production roadmap for the steel industry.

Learn how India, a major steel producer, is poised to become a global leader in green steel production and how you can contribute to this transformative journey by contacting Carbon Mandal. Take action now to support green steel initiatives and advocate for regulatory support that will accelerate the transition to cleaner and more sustainable steel production.

References

  1. Zhang, X., Jiao, K., Zhang, J., & Guo, Z. (2021). A review on low carbon emissions projects of the steel industry in the world. Journal of Cleaner Production, 306, 127259. doi:10.1016/j.jclepro.2021.127259
  2. Mallett, A., & Pal, P. (2022). Green transformation in the iron and steel industry in India: Rethinking patterns of innovation. Energy Strategy Reviews, 44, 100968. doi:10.1016/j.esr.2022.100968
  3. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1944386
  4. Sun, S. (2023). Topic: Steel industry in India. Retrieved from https://www.statista.com/topics/5585/steel-industry-in-india/#topicOverview
  5. World Steel Association, A. (2022). Retrieved from https://worldsteel.org/publications/policy-papers/climate-change-policy-paper/
  6. Fan, Z., & Friedmann, S. J. (2021). Low-carbon production of iron and Steel: Technology Options, Economic Assessment, and policy. Joule, 5(4), 829–862. doi:10.1016/j.joule.2021.02.018
  7. Muslemani, H., Liang, X., Kaesehage, K., Ascui, F., & Wilson, J. (2021). Opportunities and challenges for decarbonizing steel production by creating markets for ‘green steel’ products. Journal of Cleaner Production, 315, 128127. doi:10.1016/j.jclepro.2021.128127
  8. Conejo, A. N., Birat, J.-P., & Dutta, A. (2020). A review of the current environmental challenges of the steel industry and its value chain. Journal of Environmental Management, 259, 109782. doi:10.1016/j.jenvman.2019.109782
  9. Mandova, H., Gale, W. F., Williams, A., Heyes, A. L., Hodgson, P., & Miah, K. H. (2018). Global assessment of biomass suitability for ironmaking – opportunities for co-location of sustainable biomass, iron and steel production and supportive policies. Sustainable Energy Technologies and Assessments, 27, 23–39. doi:10.1016/j.seta.2018.03.001