Indian investment funds lag in climate risk disclosures

According to a report by The Economic Times, a large part of India's $900 billion asset management sector does not disclose its portfolio's resilience against climate shocks, leaving investors in the dark. According to a report by a think tank named Climate Risk Horizons, twelve mutual funds holding over 80 percent of the industry's assets received a zero score in climate scenario analysis and stress testing.

Climate Risk Horizons' report revealed that none of the funds disclosed the impact of a rapid transition to clean energy, delayed action, worsening physical impacts, or stranded projects on valuations and returns. In terms of climate stress testing, Indian asset managers are lagging globally. Nearly two-thirds of Asian peers disclose scenario analysis at least to some extent, and this practice is more widespread among the world's largest firms.

According to McKinsey & Company, this gap is very large for India, where rising temperatures and humidity alone could put up to $250 billion of GDP at risk annually by 2030. Sneha Yadav, the lead author of the study and sustainable finance analyst at Climate Risk Horizons, stated that investors need to understand where the risk lies, how it affects investment values, and what fund managers are doing about it.

According to the report, while all twelve firms had some form of stewardship framework and climate or ESG oversight, none disclosed the emissions funded through their investments. The think tank suggested rules for stricter disclosures, testing portfolios against climate impacts, and plans to manage them systematically.

Sagar Asapur, head of sustainable finance at Climate Risk Horizons, stated that asset managers have a fiduciary responsibility to act on financially material risks, and climate risk is clearly one of them. He added that we are already seeing physical weather events like El Niño affecting company earnings.