Corporates' new cost of capital: Climate stress testing earnings visibilitya

Infrastructure companies — utilities, water, and power companies — face the biggest risk, with potential EBITDA losses of 20-25 percent

A spell of unseasonal rains across western and southern India has disrupted retail demand and supply chains just as companies entered the busy festive quarter. This volatility, coupled with rising insurance costs and tighter credit conditions, could begin to affect earnings visibility across several climate-sensitive sectors.

Ambit Asset Management, in its latest newsletter, calls climate a “core business risk,” estimating potential EBITDA erosion of 5 to 25% by 2050 in sectors where adaptation lags. The firm notes that repeated climate events — from extreme heat to flash floods — are translating into measurable financial strain through higher input costs, asset losses and uninsured disruptions.

Infrastructure companies — utilities, water, and power companies — face the biggest risk, with potential EBITDA losses of 20-25 percent. Food and agriculture companies could lose 15 to 20 percent. Even technology and communication companies face a 5 to 10 percent risk.

The note also highlights that while regulators globally are yet to bring weather-linked exposures into formal risk assessment, insurers have begun re-pricing coverage in high-loss regions. Thus, widening what experts call the “protection gap” — where physical damage from floods or storms remains uninsured and is absorbed directly by companies.

For equity investors, these developments are no longer environmental footnotes.

Auto and FMCG majors have flagged patchy rural demand due to disrupted logistics and weak farm sentiment; agri-input companies face inventory pile-ups from erratic rainfall; and cement producers are grappling with stalled construction in flood-prone areas.

For lenders, this translates into stretched working capital cycles and delayed receivables in exposed industries.

These stresses could gradually introduce a climate premium or discount in market valuations. Companies investing in resilient infrastructure, diversified sourcing and adaptive supply chains could protect margins — and possibly attract cheaper capital — while those with concentrated exposure to weather-sensitive regions may face valuation headwinds.

This may require fund managers to then reweight toward diversified consumption plays, utilities with stable cash flows, and asset-light manufacturing models less exposed to climatic disruptions.

For now, the broader market remains focused on near-term demand recovery — but with climate stress tests around the corner and insurers tightening coverage, the financial implications of India’s changing weather may soon start showing up across earnings and credit outlooks.

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