Growing climate risks to India Inc call for a mindset shift, building resilience: Experts

While Indian businesses are aware and are impacted by extreme weather, most firms are still using tools and data from a different decade to address these climate risks, experts say

India is among the most climate-vulnerable countries. Extreme weather, climate and water-related events caused 573 disasters in India between 1970 and 2021 that claimed 1,38,377 lives. India suffered income loss of $159 billion in key sectors due to extreme heat in 2021. In 2023 extreme rainfalls lashed many parts of North India, killing over 227. Floods in northern India and Cyclone Biporjoy in Gujarat in 2023 caused economic losses of $1.2-1.8 billion and damage to infrastructure, according to an estimate by the State Bank of India. The heatwaves in 2024 claimed over 147 lives. But these costs don’t end at human lives. 

Consequent water scarcity or flash floods, decreased agricultural output, disrupted supply chains, increased healthcare costs, among others, are warning bells for India Inc. —the formal sector of the nation—in a country increasingly marred by climate risks. 

“Climate change has come into public consciousness and on companies’ radar only in the last about two decades. It is not easy for businesses to wrap their head around what is happening and what is likely to happen. You need to assess climate risks without fully knowing the contours of the problem and make decisions, “ said PS Narayan, Global Head of Sustainability, Wipro, at an online masterclass on the climate risk faced by Indian businesses and the need for them to develop climate action plans.  

Senior corporate leaders S. Sivakumar, Group Head, Agri and IT Businesses, ITC and PS Narayan, Global Head of Sustainability, Wipro, spoke at the masterclass—Heatwave, Flood & Water Stress: India Inc’s Tryst with Extreme Weather Patterns—organised by Founding Fuel in partnership with Climate Trends (CarbonCopy is published by Climate Trends). 

Unprecedented heat, abnormally high night temperatures, associated water scarcity, and the impact on crop yields, etc are some of the ways in which climate change is leaving a mark on the many sectors.  For instance, the agricultural sector is witnessing fallen yields in fruits like mango, grapes, apples and grains like wheat across the country, resulting in decreased exports. 

Similarly, worsening water cuts in urban centres such as Bengaluru are impacting businesses adversely. Flooding after incessant rain has also led to a loss of capital investment and impacted infrastructure. 

“The industries that will be affected the most are likely to be agriculture, construction due to  the outdoor work involved, tourism, and utilities (water & electricity supply),” said Professor Runa Sarkar, Economist and Faculty at IIM, Calcutta. 

According to the World Bank, India may account for 34 million of the 80 million global job losses by 2030. In 2019, the country lost about $69 billion due to climate related events, which is close to the loss over the previous decade, from 1998 to 2017 — what was earlier lost in a decade, is now being lost in a year. Floods affected 14 states in 2019, displacing 1.8 million people, and causing over 1,800 deaths. Twelve million people were affected by intense rainfall in the 2019 monsoons and economic loss was $10 billion. 

The Food and Agriculture Organisation of the United Nations (FAO) states that India is the world’s largest producer of milk, pulses and jute, and ranks as the second-largest producer of rice, wheat, sugarcane, groundnut, vegetables, fruit and cotton. It is also one of the leading producers of spices, fish, poultry, livestock and plantation crops. Worth $ 2.1 trillion, India is the world’s third-largest economy after the US and China. What unfolds in India also affects its relationship with the rest of the world.

With such erratic weather patterns only to grow, there is an urgent need for corporations to factor in climate risks in their business planning.  The masterclass discussed the best way to examine risks and the ways to bring climate change to the centre of the India Inc. 

Experts shared how corporations are already feeling impacted by the changes on the ground in a rapidly evolving situation, where do businesses stand today in dealing with the situation and what are the ways to remedy this. 

How are businesses getting impacted?

One of the most straight-foward impacts of increasing extreme weather events is shortages in supply and fall in consumption. One consequence of such sudden disruptions can also mean that investments would fall. This is because the investor wouldn’t know what is the right place to invest in, the experts said during the masterclass. 

Additionally, labour shortages during high heat will also affect the production. Therefore, climate impacts are not linear, rather holistic and cascading.

Such factors would put a range of aspects at risk, including business continuity, cash flows, health (physical health, climate anxiety, mental health) and productivity, ability to innovate, availability of capital, etc to name a few. 

Talking about the different approaches needed by the different sectors, Narayan said hospitality and healthcare is different in its characteristics, and therefore, in its response, from IT services or ecommerce. The former, where physical presence is required, are affected by intense heat or a flooding event. While IT services include remote work and are considered safe, there’s risk there as well. 

“IT Services in Wipro’s case is largely urban centric. We did a granular risk mapping 5-6 years back. If I have to understand risk at the city level or a ward level, we don’t have a template to guide us. The changes in climate patterns are unpredictable — some micro-geographies are affected much more than others. You have to marry whatever is the state-of-the-art in climate risk assessment with a whole host of open parameters to understand how your location is affected — we are not there yet in terms of a systemic understanding,” said Narayan. 

Remote work assumes that the digital infrastructure works reliably and even that cannot be taken for granted, Narayan said. He added how in 2022, the cloud infrastructure in London had to shut down because of the heatwave in Europe, highlighting that impacts travel across sectors and remote work is not safe from climate change. 

The need to sectorally examine growing climate impacts

Talking about the steps different businesses need to take to address climate risks, Sarkar said, “Industry bodies need to look sectorally at different industries and create vulnerability indices for each of them. That will help us understand the kind of capital expenditures needed to make physical assets resilient.”

For a lot of businesses, often relocation is not an option, because it’s not just one region that is vulnerable. While the financial outlays will be high today to build up resilience, it could lead to future benefits, which otherwise would be costs because of extreme weather events, experts warned during the masterclass. 

Therefore, doing that cost benefit analysis for risk assessment is very important to ensure that there is a way of addressing extreme weather damage. 

Particularly for insurance to work as a business model, there needs to be a risk prediction. Even then, the frequent vagaries of weather are making it tough for the insurance sector to mitigate the risks. Damage from global natural disasters in 2023 totaled $380 billion in economic losses – with only $ 118 billion of these losses covered by insurance.

While insurance is the go-to measure for risk management for a firm, experts said that it would be very short-sighted for firms to think that insurance is a way of mitigating the risks. For instance, after the Los Angeles wildfires, insurance companies now do not offer home insurance to people in the regions prone to wildfires.

Since every industry is different and their vulnerabilities are different, such assessment has to be done sectorally.

The threat to supply chains and the urgency to make a move

For businesses, preparing for such situations is about gaining visibility till the end of their supply chain. “It is also realising that it’s not just my supply chain, I have to look at the associated events, and work around it. India is a country where we can have drought and floods at the same time. The more geographically dispersed I am, I don’t get the information about the extreme extent,” explained Sarkar.

It is the need of the hour of the Indian Inc to assess climate risks and build up resilience to counter the same.  

The way forward

“Businesses understand the lexicon of money. How do you bring these externalities into that lexicon?” said Narayan. He added that such situations call for a mindset shift — which is a different ballgame at a collective level. The masterclass noted that the larger companies are looking at addressing climate risks from the reputation and branding angle as well.

From the noise of activism we need to move to a call for action, the experts added.

At an enterprise level, the move must be to integrate climate risk management into strategy and decision making. 

As an industry collective, there’s a need to build risk-centric institutions with policymakers. 

For all large-scale conservation restoration projects, the scale can really be meaningful when it is collective. 

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Vandita Sariya

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