Article Contents

Updated on: August 01, 2025

Why your Business can no Longer Ignore Climate Risks ?

Climate change is not just an environmental issue, it’s a business risk.Storms, floods, heatwaves, carbon taxes, investor demands, supply chain disruptions, these are no longer distant possibilities. They’re current-day realities that are reshaping how companies operate, grow, and stay competitive.

Global frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) have already made climate risk a boardroom issue, Indian regulators too are now putting formal guardrails in place, led by RBI’s draft climate risk disclosure norms, SEBI’s BRSR Core indicators, and a host of sector-specific ESG mandates.

In this article , we break down:

What climate-related business risks really mean
How they affect Indian companies across sectors
What regulators are now asking companies to disclose
What businesses can do today to future-proof themselves

What is a Climate Risk ?

Climate risk refers to the potential harm that climate change can cause to businesses, communities, or the economy.

For businesses, this harm can come in many forms, a flooded factory, a new carbon tax, a sharp drop in consumer trust, or losing out on financing due to poor sustainability ratings.

The TCFD classifies these risks into two main types:

Physical Risks

These are the direct effects of a changing climate and India is one of the most exposed countries in the world.

Acute Risks caused by cyclones, flash floods, heatwaves, landslides etc. Usually causing damage to physical assets, halted operations, delayed logistics, higher insurance costs. Example: A warehouse in Mumbai flooded during a monsoon event could face weeks of operational downtime.
Chronic Risks caused by long-term changes in rainfall, rising temperatures, water scarcity, sea level rise etc. Usually causing strain on energy and water systems, productivity loss, declining land value. Example: Textile factories in Tamil Nadu may experience year-round water stress, raising operational costs

Transition Risks

These are risks arising from the global move toward a low-carbon economy. As governments, investors, and consumers push for cleaner business practices, the transition itself can disrupt companies.

Regulatory Risks caused by change in policies. For example India is introducing policies like Carbon Credit Trading Scheme (CCTS), BRSR Core mandatory disclosures. Non compliance to such regulatory requirements could lead to fines, reputation loss, or being left out of public procurement and supply chains.
Market risks arise as buyers shift to greener products and services. For example, exporters who can’t show product-level carbon footprints may lose clients in the EU due to CBAM (Carbon Border Adjustment Mechanism)
Technology risks of higher costs due to a lag in adopting low-emission technologies or be replaced by more agile competitors.
Reputation and Litigation risks as poor climate action or misleading sustainability claims can attract lawsuits, investor exits, or brand boycotts. In India, greenwashing is now under scrutiny under CCPA guidelines on misleading environmental claims.

Both physical and transition risks eventually become Financial risks, including:

Higher operating costs from carbon taxes, energy prices, or risk premiums
Loss of access to capital as banks and investors scrutinize ESG performance
Stranded assets like diesel generators or coal-based infrastructure becoming obsolete
Revenue loss from supply chain disruptions or customer attrition

What’s changing in India

The Reserve Bank of India has released a draft disclosure framework on climate-related financial risks, modeled closely on the TCFD. It is aimed at banks, NBFCs, and housing finance companies, but will have a ripple effect across all sectors.

RBI’s Framework Covers Four Pillars:

Governance : How climate risk is integrated into board oversight and strategy

Strategy : How climate risks and opportunities affect your business

Risk Management : How you identify, assess, and respond to climate risks

Metrics & Targets : Emissions, targets, and financed emissions disclosure

So how does it matter to your business ? Banks and investors will now begin asking tougher questions about your climate exposure, emissions, and transition plans. If your disclosures are weak or non-existent, you may face higher interest rates, capital rationing, or exclusion from green lending programs.

SEBI’s BRSR Core is also raising the bar on ESG scrutiny. BRSR Core adds assurable indicators including Scope 1 and 2 Emissions and Emission Intensity Metrics.

How to manage Climate risks in your Business

The better you understand your carbon-related risks, the better equipped you’ll be to act on them. A well-designed risk management plan starts with visibility and turns that into measurable progress. Here’s how to build an effective risk management plan:

Start with a robust baseline

Start by calculating your Scope 1, 2, and 3 emissions. This creates a baseline for understanding your climate impact and helps anticipate transition risks like regulation, carbon pricing, and investor scrutiny.

Assess physical climate risks

Use location-based data and climate models to identify risks like flooding, drought, extreme heat, water stress. Assess the short term and long terms impacts on assets, people, supply chain and logistics

Analyse transitional risks

Evaluate how your business could be impacted by new regulations, carbon markets, client preferences or technology disruption. This helps avoid surprises and plan ahead for business model shifts.

Map financial exposure

Start linking climate risks to your financials. When you understand these financial risks early, you can plan smarter switch to cleaner technologies, avoid risky investments, and protect your margins.

Disclose transparently

Use recognized frameworks to report your metrics, risks, actions, and targets. Transparent reporting builds trust with clients, regulators, investors, and lenders.

Engage and strengthen your value chain

Climate resilience is not a solo act. Work with suppliers, vendors, transporters, and franchisees to collect data and identify shared risks. This also reduces scope 3 exposure and builds systemic resilience.

Set targets and build a transition plan

Set emissions reduction targets aligned with business goals. Use scenario modelling to explore decarbonization levers, ROI on interventions, operational efficiency for reductions. Track progress and pivot accordingly.

Integrate into governance

Make climate risk part of mainstream decision making and assign ownership at top management level. Get buy-ins and cultivate culture across your organization. Climate risk is no longer optional or abstract, it’s operational, financial, and immediate. The sooner you start, the more resilient and sustainable your business becomes. Book a demo with Klimates to learn how to map and understand your climate risks.

hello@klimates.earth

Request a demo

Solutions

Resources

Company

Glossary