Credible transition plans are key to financing India’s net zero transition

Achieving India’s net zero emissions target by 2070 is estimated to require USD22.7 trillion (INR2,172 lakh crore) in cumulative investment. Indian companies are expected to play a central role in this transition, and much of this capital will need to flow to them.

However, financing this transition will expose capital providers to several risks. Technologies may not scale as expected, business models may need to change, policy and carbon-price assumptions may shift, and investments in carbon-intensive assets could become stranded. Investors, therefore, need to assess whether Indian companies are prepared to manage these risks. This requires evidence that a company’s transition strategy is credible, financially supported and deliverable. A climate transition plan provides that evidence.

Indian companies are increasingly announcing net zero ambitions, with a growing number now describing how they intend to get there. Yet, current disclosure mechanisms rarely provide investors with the evidence they need to make an informed assessment. India’s Business Responsibility and Sustainability Reporting (BRSR) framework, which sets out sustainability-related disclosure requirements for the country’s largest listed companies, already requires companies to report on many elements of their transition plans. What the framework does not yet do, however, is specify what a complete transition plan looks like, resulting in inconsistencies.

Bridging the gap

Addressing these gaps requires focus on three key areas. The first is the importance of each metric within a credible transition plan and the implications of a gap in reporting it. These gaps fall into three further categories: Unsubstantiated ambition, where a target is announced without a clear action or funding behind it; internal contradiction, where different parts of a plan do not add up; and an accountability gap, where no one in the organisation clearly owns the delivery of the transition plan. When these remain unaddressed, they can allow greenwashing and unsubstantiated claims to persist. IEEFA’s analysis of transition plan disclosures of Indian companies shows that the metrics that guard against these gaps are among the least consistently disclosed.

The second focus area is whether a metric already features in the wider global and domestic regulatory landscape. Globally, the International Sustainability Standards Board (ISSB)’s IFRS S2 climate-related disclosures standard — the global baseline for climate-related disclosures — requires that an entity disclose relevant information about its transition plan if it already has one. But it does not itself require an entity to have a transition plan.

Domestically, requirements specific to transition plans are also emerging in frameworks Indian regulators have issued or proposed. The Securities and Exchange Board of India’s (SEBI) environment, social and governance (ESG) debt framework links sustainability objectives and performance to the credibility of ESG debt instruments, making robust information important for companies seeking sustainability-linked financing. The Reserve Bank of India’s (RBI) draft climate-related financial risk disclosure framework similarly emphasises governance, strategy, risk management, and metrics and targets, reflecting the need for financial institutions to understand how climate-related risks can affect borrowers and portfolios. The International Financial Services Centres Authority’s (IFSCA) transition bonds framework takes this further by placing a credible entity-level transition plan at the centre of transition finance.

The third area of focus is demand from the market itself, meaning how widely a metric is used by the intermediaries that sit between companies and capital providers. IEEFA’s review of 15 assessment tools used by intermediaries — including disclosure framework organisations such as CDP, ratings and index providers such as MSCI and Indian ESG rating agencies, and certification bodies such as the Science Based Targets initiative — shows which metrics are most widely used in their assessments. The metrics that score highest here are the ones investors and lenders are already using.

Taken together, these three key areas identify a small set of metrics where clearer guidance would make the biggest difference.

What a strong disclosure looks like

Six metrics stand out as most important. The first three set out the transition plan itself: Disclosure of net zero ambition, covering the target year, emissions scope and greenhouse gas (GHG) coverage, and baseline; short-term GHG reduction targets, which show the pathway towards the longer-term goal; and transition levers, including the actions, timelines and expected emissions reductions associated with each lever. The fourth specifies metrics and targets for each key transition lever, which let investors and lenders track whether the plan is being delivered. Fifth is the capital expenditure linked to these levers, indicating whether the transition plan is supported by resources. And the final metric is greater clarity on governance responsibilities, which can help investors and lenders assess who is accountable.

None of these metrics requires a new BRSR question. Each can be mapped to a field that already exists. In some cases, the data is already sought and only the reporting format needs specifying. An example is capital expenditure, where guidance could ask companies to disclose ESG-related capital expenditure in both absolute and percentage terms, followed by a breakdown of the environmental component of this spending by transition lever. In others, the existing question addresses the topic but does not yet ask for the metric, and SEBI’s BRSR guidance can introduce it as a specific expectation.

Progressively incorporating these priorities into BRSR can improve the consistency, comparability and decision-usefulness of transition disclosures while building on the framework’s existing architecture. This can help ensure that the information companies provide is more closely aligned with what investors and lenders need to assess transition strategies. This will, in turn, strengthen the role of BRSR as a bridge between Indian companies and the capital needed to support the country’s transition.

This article was first published in Green Central Banking.