137. Climate-Related Financial Disclosures

Introduction

Climate-related financial disclosures refer to the reporting of information about how climate change may affect a company's financial position, business model, operations, investments and long-term risks. Climate change can create physical risks, such as floods, droughts and extreme temperatures, as well as transition risks, arising from changes in technology, regulation, consumer preferences and energy markets. Transparent disclosure enables investors, lenders and other stakeholders to assess these risks and make informed decisions.

Legal and Regulatory Framework in India

In India, climate-related disclosures are increasingly incorporated into the broader Environmental, Social and Governance (ESG) reporting framework. The Securities and Exchange Board of India (SEBI) requires the top 1,000 listed entities by market capitalization to provide Business Responsibility and Sustainability Reports (BRSR). SEBI has also introduced BRSR Core, containing selected key performance indicators designed to improve the reliability of sustainability information. The framework includes independent assessment/assurance mechanisms and has progressively expanded its application.

Climate-related information may include greenhouse-gas emissions, energy consumption, renewable-energy use, climate risks, resource efficiency and sustainability-related targets. Value-chain disclosures have also been incorporated into SEBI's ESG framework, although the applicable requirements have been modified and, for certain entities, made voluntary under later regulatory measures.

The purpose of such disclosure is not merely environmental reporting. It is increasingly connected with financial materiality, investor protection and prevention of greenwashing. SEBI has expressly identified the need to improve the credibility of ESG information and reduce greenwashing risks.

Importance of Climate-Related Disclosures

Effective disclosures should provide reliable information concerning climate risks, governance arrangements, risk-management systems, emissions and relevant targets. Investors can use this information to evaluate whether climate-related factors may affect revenues, operating costs, asset values, insurance costs or access to finance.

Disclosure must also be accurate and understandable. Misleading sustainability claims can distort investment decisions and undermine market integrity. Consequently, independent assessment and standardized reporting are increasingly important.

Important Case Laws

In Vellore Citizens' Welfare Forum v. Union of India (1996), the Supreme Court recognized sustainable development, the precautionary principle and the polluter-pays principle as important principles of Indian environmental law. These principles support greater integration of environmental considerations into economic decision-making.

In M.C. Mehta v. Union of India (1987), the Supreme Court developed the doctrine of absolute liability for enterprises engaged in hazardous activities. The case reflects the broader principle that economic activities may carry significant environmental responsibilities.

In Hanuman Laxman Aroskar v. Union of India (2019), the Supreme Court emphasized transparency, application of mind and procedural fairness in environmental decision-making. These principles are relevant to climate disclosures because reliable environmental information is essential for informed regulatory and investment decisions.

In M.K. Ranjitsinh v. Union of India (2024), the Supreme Court recognized a constitutional right against the adverse effects of climate change, linking climate protection with Articles 14 and 21. This development strengthens the constitutional significance of climate-related governance and accountability.

Conclusion

Climate-related financial disclosures connect environmental risks with corporate accountability and investor protection. India's BRSR and BRSR Core framework represents an important development toward standardized and more credible ESG reporting. Accurate disclosure, independent assessment, transparency and prevention of greenwashing are essential for maintaining confidence in financial markets. As climate risks increasingly affect businesses and investments, climate-related financial disclosure is becoming an important component of corporate governance, securities regulation and sustainable development.