Despite the carbon credits euphoria, climate change remains a serious threat to businesses in India

For Indian corporations, carbon credits have been an unexpected silver lining around the cloud of greenhouse gases that has brought climate change to the forefront of the global consciousness. And while many have been quick to seize the opportunities presented by CERs, they must also face up to the new business risks and compliance requirements associated with operating in an environmentally aware market.

“As the global climate markets and regulatory regimes continue to develop, more and more companies are facing critical decisions and potential risks associated with their carbon footprints that are impacting investment opportunities, risk management, corporate disclosures, and even shareholder activism,” cautions David Hayes, the global chair of the environment, land and resources group at Latham & Watkins.

“Businesses are now realizing that the issues relating to environment cannot be treated as external factors,” adds Sunil Sinha, a senior economist at ratings company Crisil. “For the long-term sustainability and viability of a company, [environmental issues] are like any other business risk,” he adds.

Dina Dattani at Nishith Desai Associates, a Mumbai-based law firm that has set up a climate practice group, agrees: “With increased concerns across various strata of society, environmental issues and the enforcement of environmental laws will no longer remain the business of the courts,” she explains. “It will be more of a political issue and businesses will be affected at a much larger scale.”

The Air (Prevention and Control of Pollution) Act, 1981, is an example of this move away from the courts. It empowers state boards not only to cut off supplies of electricity and water from polluting industries, but also to force their closure. The Environment Protection Act, 1986, meanwhile, lays down industry-specific emissions standards for CO2 and other pollutants.

Compliance with increasingly onerous regulations will inevitably lead to a rise in operating costs. There is also a growing risk that non-compliant businesses could face damaging and costly action, not only from government departments and regulators, but also from environmental organizations and public interest groups.

But many companies are finding that the sheer weight of environmental legislation is making it difficult to ensure full compliance. According to Dattani, there are now more than 200 pieces of legislation from central and state governments dealing with environmental protection.

Indeed, the government’s enthusiasm for drafting and enacting environmental laws has caught the attention of the country’s Supreme Court: In the case of Indian Council of Enviro-Legal Action v Union of India, the court commented that “If mere enactment of laws relating to the protection of the environment was to ensure a clean and pollution free environment, then India would, perhaps, be the least polluted country in the world; but it is not so.”