FINSEARCH

Which firms face the highest climate

change risk and how to assess the risk
using financial indicators and its impact
on fund raising.

Aryan kumar
Dheeraj Kumar Reddy
Tushar kotangale
Yash Agarwal
 What is Climate Change?
According to UN, Climate change refers to long-term shifts in
weather patterns, shifts can be natural due to Sun’s activity and
volcanic eruptions. Since 19th century humans have been the major
drivers, due to overexploitation of fossil fuels (coal, oil and gas ).

Humans are responsible for Global Warming

Earth’s temperature is rising every decade, last four decades have
been warmer than any previous decade since 1850

Is Climate Change only about warmer temperatures? (No it’s not)

Consequences also include intense droughts, water scarcity,
severe fires, rising sea levels, flooding, melting polar ice,
catastrophic storms and declining biodiversity.
Migrations and relocations due to sea level rise are leading to
“Climate refugees”
Prediction says that we will see a rise of 2.8 °C by the end of this
century.
So what next?........

Source: https://www.un.org/en/climatechange/what-is-climate-change
 GHG emissions account for most of the Climate Change. Energy, industry, transport, buildings, agriculture and land use are
among the main sectors causing greenhouse gases.

Paris Agreement(2015): signed by 194 parties to ensure that we substantially

reduce global GHG emissions to limit the global temperature increase in this
century to 2 °C while pursuing efforts to limit the increase even further to 1.5° C.

Scope 1 emissions: direct emissions caused

by activities controlled or owned by an
organization

Scope 2 emissions: indirect emissions

of an organization

Scope 3 emissions: caused by assets not

owned or controlled by an organization,
but which still impact its value chain.

To achieve Before 2050 the global economy needs to be at ‘net zero’ carbon emissions.

Source: https://www.un.org/en/climatechange/what-is-climate-change
What are Climate Risks?
Climate risk refers to the potential negative impacts of climate change.

Physical: damage to land, buildings, stock or Liability: financial liabilities, including insurance claims
infrastructure owing to physical effects of climate- and legal damages, arising under the law of contract,
related factors, such as heat waves, drought, sea levels, tort or negligence because of other climate-related risks
ocean acidification, storms or flooding

Secondary: knock-on effects of physical risks, such as Transition: financial losses arising from disorderly or
falling crop yields, resource shortages, supply chain volatile adjustments to the value of listed and unlisted
disruption, as well as migration, political instability securities, assets and liabilities in response to other
or conflict climate-related risks

Policy: financial impairment arising from local, national Reputational: risks affecting businesses engaging in,
or international policy responses to climate change, or connected with, activities that some stakeholders
such as carbon pricing or levies, emission caps or consider to be inconsistent with addressing
subsidy withdrawal climate change
How climate risks affect companies ?

These climate risks produce negative effects on

companies financials. Financial Sector firms, Agricultural
firms, FMGC are affected mostly.

According to the former director at International Central Research

Institute for Dryland Agriculture (CRIDA). As agriculture contributes
15 per cent to India’s GDP, climate change presumably causes about
1.5 per cent loss in GDP

As per the National Disaster Management Authority's (NDMA) report,

natural disasters have led to a loss of around INR 16,000 crore (USD 2.2
billion) to the Indian economy over the last two decades

According to CDP, a non-profit that runs a green disclosure system globally, 39 listed
Indian companies have put the risk to their business from climate change at a record
₹7.13 lakh crore
 How are companies taking Climate action to mitigate Climate risks?

ESG stands for Environmental, Social, and Governance. it helps

companies identify and manage environmental and social risks
while promoting good governance practices.

Companies are increasingly adopting strategies such as setting

emission reduction targets, investing in renewable energy,
implementing sustainable practices, diversifying supply chains,
conducting climate risk assessments, and engaging with
stakeholders to address climate-related issues.

As many as top 24 private Indian companies including TATA, Reliance,

Mahindra, ITC, ACC, Dalmia cement will be Carbon Neutral by 2025.
data taken from company’s ESG section of annual report

TESLA Nestle
Nestlé has reduced the packaging materials
According to their 2021 impact report, Tesla
in its coffee and nutritional products, and
solar panels have generated more electricity
replace 100% recyclable or reusable
than has been consumed to power all their
packaging by 2025
vehicles and factories between 2012 and 2021.

https://www.tesla.com/ns_videos/2021-tesla-impact-report.pdf
https://www.nestle.com/sustainability/climate-change/zero-environmental-impact
Economics of climate change

The Economist Intelligence Unit estimated the

net present value costs of climate change at
US$4.2 trillion.

India has 10%-18% of GDP at risk, roughly treble

that of North America and 10 times more than
the least-affected region, Europe.
Emission across sectors

Globally, the primary sources of greenhouse gas emissions are electricity and heat
(31%), agriculture (11%), transportation (15%), forestry (6%) and manufacturing
(12%). Energy production of all types accounts for 72 percent of all emissions. India
makes 7% of global carbon emissions, after China, US and EU.

The electricity and heat sector was responsible the largest share
of India's greenhouse gas emissions in 2020, at 35 percent
(excluding LUCF). More than 95 percent of India’s power sector
emissions are produced by coal-fired power plants - the
country's primary source of electricity generation. The second-
largest contributor to greenhouse gas emissions in India is the
country's important agriculture sector
Carbon as a asset class
Carbon credit markets
Carbon trading involves a cap-and-trade system where companies are allocated emissions allowances, which
can be bought or sold in a market, enabling businesses to manage and reduce their carbon emissions. China
was first to introduced carbon credit markets. Indian government has plan to develop Indian carbon markets,
which will be introduced by next march.

Green bonds
Green bonds are financial instruments used to
raise capital for environmentally sustainable
projects, such as renewable energy, energy
efficiency, and clean transportation initiatives.
The green bonds market exceeded $517.4
billion in 2021, with a five-year growth rate of 70
per cent
Climate Change and Investment

Investment in Adaptation: involves investment in climate resilient

infrastructure, technology and activities to increase resilience and
help adapt to the consequences of climate change
During 2015 - 30 the required investment in mitigation and
adaptation was $630 billion–970 billion, with a gap of $440
billion–780 billion.

Investment in Adaptation: involves investment in climate resilient

infrastructure, technology and activities to increase resilience and
help adapt to the consequences of climate change
During 2015 - 30 the required investment in mitigation and
adaptation was $630 billion–970 billion, with a gap of $440
billion–780 billion.

Typical public goods sectors (Floodwalls, dam protection systems,

drainage systems, reforestation, mangrove protection, disaster
prevention, early warning systems ) are less likely to attract direct
private investment yet they can leverage private finance through
capital market products such as green bonds.

Source: World Investment Report 2022, UNCTAD

 Is Climate big enough a problem to be solved?

Research shows that in 2013 the early-stage VC funding for climate tech companies was about $418 million which ultimately
increased to $16.1b in 2019 (3750% increase). This is on the order of 3 times the growth rate of VC investment into AI, during a
time period renowned for its uptick in AI investment.

What is Climate Tech?

It Includes a broad set of sectors which tackle the challenge of decarbonizing the global economy, with the aim of reaching
net zero emissions before 2050. This includes low-to-negative carbon approaches to cut key sectoral sources of emissions
across energy, built environment, mobility, heavy industry, and food and land use; plus cross-cutting areas, such as carbon
capture and storage, or enabling better carbon management, such as through transparency and accounting.

Source: The Climate Tech Outlook Report, Unitus Capital