OPINION | India’s climate disclosure regime needs careful calibration

These steps create an integrated regime: companies report operations and value chains, banks disclose climate exposure, and ESG issuers face verification. Disclosures will become regulatory filings, subject to assurance, shaping valuations, credit decisions, and fundraising costs through verified climate performance.

Serious gaps

But critical gaps remain. There is no unified green taxonomy, leaving sustainable finance vulnerable to inconsistent labels. Value-chain reporting risks failure because smaller firms lack systems to measure emissions. India has too few professionals to provide credible assurance of ESG data. And RBI and SEBI remain only partially aligned, raising the risk of fragmented compliance.

Unless these issues are resolved, disclosure will become a costly compliance exercise with limited investor value and trust. That could misprice capital flows and expose markets to systemic instability in a climate-risk landscape—the very outcome these frameworks aim to prevent.

India needs a common taxonomy, scalable supplier support, rapid expansion of assurance capacity, regulatory convergence on global frameworks (ISSB, NGFS, PCAF), and strict enforcement against greenwashing. With these in place, disclosure can serve its real purpose of enabling markets to price climate risks and allocate capital to transition-ready firms. Without them, India risks undermining its own climate-finance architecture.

The taxonomy gap presents the most immediate threat to efficient capital allocation. RBI’s green deposits framework specifies eligible renewable energy activities. SEBI’s ESG debt circular covers broader social and sustainability categories. No unified classification exists for transition activities—the bulk of climate-related investment needs.

Regulatory arbitrage

This fragmentation allows regulatory arbitrage. Projects qualifying as “green” under one framework may not qualify under another, creating artificial distinctions that distort funding costs. Value chain reporting amplifies the problem. Data on Scope 3 emissions, indirect emissions from a company’s value chain that are often multiple times larger than direct emissions, are a huge issue. Smaller companies lack measurement systems, creating a data bottleneck where large companies’ climate disclosures depend on small suppliers' non-existent capacity.

For banks, financed emissions and scenario analysis mean climate exposures will be priced into capital and provisioning. Credit allocation to carbon-intensive sectors will face greater scrutiny, while sectors aligned with transition pathways may receive preferential terms.

The assurance bottleneck compounds these issues. Rapid expansion of mandatory third-party verification requirements outpaces qualified provider capacity. The pool of professionals able to credibly assure ESG data is small. Inconsistent assurance standards across engagements undermine data credibility precisely when markets need reliable climate information for pricing decisions. Without clear standards and accredited providers, assurance risks becoming a box-ticking exercise.

Need for common metrics

Regulatory fragmentation comes at a cost. RBI focuses on systemic climate risk and capital adequacy, while SEBI emphasizes transparency and investor protection. Without alignment on metrics and scenarios, companies may face conflicting disclosure demands. Additionally, neither regulator explicitly classifies the socioeconomic risks of decarbonization—like job losses or community disruption—as material financial risks, despite their potential to trigger loan defaults, stranded assets, and broader economic instability during the transition.

Regulators should provide sector-specific playbooks and digital templates to help suppliers, especially MSMEs, report Scope 3 data. Industry associations can support shared assurance to lower costs. SEBI and RBI must align on global standards like ISSB, NGFS, and PCAF to ensure consistency and build ecosystem-wide capacity.

Assurance capacity must be expanded through accredited provider registries and published assurance scopes. Variable assurance standards across different engagements could affect data reliability, potentially limiting investor confidence in disclosed information. Anti-greenwashing provisions must be enforced through pre-issuance and post-issuance reviews with clear penalties.

RBI should explicitly integrate just transition principles into its climate risk framework, requiring banks to disclose their exposure to carbon-intensive industries and outline financing strategies for economic diversification in vulnerable regions.

Windows for syncing

RBI and SEBI have until their next major circular updates to address these gaps. The BRSR Core rollout through FY 2026-27 provides a window for taxonomy harmonization and capacity-building. RBI’s climate-risk disclosure finalization offers an opportunity for inter-regulator coordination on shared standards.

Delay risks entrenching fragmented approaches as compliance systems adapt to current requirements. Corporate systems, assurance practices, and market expectations will crystallize around existing frameworks, making subsequent harmonization more difficult and expensive.

India is building a new financial framework, one that is supposed to guide capital towards a more sustainable future. The country’s climate disclosure regime will either enable efficient capital allocation or distort it through regulatory fragmentation. The choice remains open, but the window for coherent policy response is narrowing.

(Soumya Sarkar is an independent expert based in New Delhi and Kolkata. Twitter: @scurve Instagram: @soumya.scruve.)

Views are personal, and do not represent the stance of this publication.