The urgent need for climate-related risk disclosures in India's energy industry

• Author: Akriti Bhargava
• Position: Received her J.D. with honors from Lewis & Clark Law School, with certificates in Energy and Sustainability Law and International Law (2022)
• Pages: 81-114

NOTES

THE URGENT NEED FOR CLIMATE-RELATED RISK

DISCLOSURES IN INDIA’S ENERGY INDUSTRY

AKRITI BHARGAVA*

ABSTRACT

India’s future energy trajectory is critical to global climate stability. The risks

posed by climate change to infrastructure, economies, public health, and the

environment continue to escalate around the world. Yet, at the UNFCCC 26

th

Conference of Parties in Glasgow, India pushed for a change of the wording of

the Glasgow Pact from “phase out” of coal as an energy source to “phase

down.”

1

Reuters, China and India Will Need to Explain Coal Move, COP26 President Says, ECONOMIC

TIMES: ENERGYWORLD (Nov. 15, 2021), https://energy.economictimes.indiatimes.com/news/

renewable/china-and-india-will-need-to-explain-coal-move-cop26-president-says/87707091.

Even though the nation marginally increased its climate commitments

at COP26, its economic goals are not compatible with global temperature goals

as established in the Paris Agreement, particularly as the country seems poised

to privatize existing, nationally-owned fossil fuel assets and is investing signifi-

cantly in natural gas infrastructure.

India has announced a national goal to transition its economy from coal to

natural gas in an effort to become a $5 trillion economy by 2025. To accom-

plish this goal, India has amended a variety of laws and regulations in the last

two years to i) support privatization of the energy sector in the name of efficiency

and increased productivity, as well as to ii) increase the inflow of foreign direct

investment into the sector to boost natural gas consumption, production, and

infrastructure with minimum regulatory burdens. This will lead to a rapid

transformation of India’s energy sector, including the development of signifi-

cant natural gas assets, infrastructure, and companies, in keeping with the

Government of India’s national policy.

India’s Companies Law of 2013 ascribes a duty to directors to disclose mate-

rial risks to enable stakeholders to remain informed about the risks faced by com-

panies, but crucially omits an inclusion of risks from extreme climatic events

in its definition of “material.” The lack of climate-related risk disclosure

* Akriti Bhargava received her J.D. with honors from Lewis & Clark Law School, with certicates

in Energy and Sustainability Law and International Law (2022). She also holds a B.A. in Environmental

Studies, Political Science, and Economics from the University of Vermont (2016). A special note of

gratitude for Professor Lisa Benjamin for her guidance and mentorship throughout the research and

drafting of this Note. This paper received a Lewis & Clark Law School 2022 Davis Wright Tremaine

International Law Writing Award. V

C 2023, Akriti Bhargava.

1.

81

requirements for companies in the energy sector undermines the reliability of in-

formation available to companies, investors, and community members at large.

India’s corporate governance framework needs to evolve to include stricter and

more robust climate-risk disclosure requirements because a director’s failure to

factor climate-related risks can cause a significant decline in the value of the

company as well as cause avoidable damage to consumers and community at

large. Given the similarities in the legal systems and the law between India and

the United Kingdom, this Note undertakes a comparison of the corporate gover-

nance structures and the Companies Acts of the two nations. Further, this Note

looks at the status and future of climate-related risk disclosure requirements for

companies in the United Kingdom and the United States as possible models of

nations transitioning from coal to natural gas economies for India to follow in

instating its own stringent disclosure guidelines and requirements.

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

II. BACKGROUND ..

.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

A. India’s Natural Gas Industry: Production and

Transportation Infrastructure . . . . . . . . . . . . . . . . . . . . . 87

B. India’s Natural Gas Industry: Importing LNG . . . . . . . . . 89

III. PRIVATIZATION OF INDIA’S ENERGY AND ELECTRICITY LEGISLATIVE

AND REGULATORY LANDSCAPE . . . . . . . . . . . . . . . . . . . . . . . . . 91

A. Ministry of Petroleum and Natural Gas . . . . . . . . . . . . . . 91

B. The Electricity Act ..

.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

C. National Electricity Policy . . . . . . . . . . . . . . . . . . . . . . . . 93

D. The Petroleum and Natural Gas Regulatory Board Act . . . . 94

IV. PRIVATIZATION OF THE OIL AND GAS SECTOR LEADING TO FDI

POLICY LIBERALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

V. INCREASED FDI INTO THE ENERGY SECTOR CALLS FOR STRICTER

CORPORATE GOVERNANCE REGULATIONS . . . . . . . . . . . . . . . . . . 97

A. Corporate Governance Framework in India .

.

. . . . . . . . . . . 98

B. Corporate Governance Framework in the U.K. 101

C. Analysis: Comparing India and the U.K.’s Companies Acts 103

VI. INDIA’S CORPORATE GOVERNANCE FRAMEWORK MUST NOW

ADDRESS CLIMATE-RISK DISCLOSURES .

.

. . . . . . . . . .

. . . . . . . . . . . . . . . . . . . 103

A. Climate Risk Disclosure in India . . . . . . . . . . . . . . . . . . . 106

B. Climate Risk Disclosure in the U.K. . . . . . . . . . . . . . . . . . 108

C. Climate Risk Disclosure in the U.S. . . . . . . . . . . . . . . . . . 110

D. Analysis: The Importance of Climate-Risk Disclosures in

India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

VII. CONCLUSION .

.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

82 [Vol. 54

I. INTRODUCTION

India, as the fastest growing large economy in the world, is well-posi-

tioned to lead global action towards ambitious climate targets.

2

Indivjal Dhasmana, GDP Grows at 8.4% in Q2: India Still Fastest Growing Large Economy in

World, BUSINESS STANDARD (Dec. 1, 2021), https://www.business-standard.com/article/economy-

policy/gdp-grows-at-8-4-in-q2-india-still-fastest-growing-large-economy-in-world-121120100036_1.

html.

Like

many other nations around the world, India has an opportunity to

build back more sustainably from the impacts of COVID on its econ-

omy. The nation has three main domestic goals for the near future: to

become a $5 trillion economy by 2025, electrify almost all homes in the

nation in the near future, and become energy secure by 2047.

3

MINISTRY OF PETROLEUM AND NATURAL GAS, SNAPSHOT OF INDIA’S OIL & GAS SECTOR (2021),

https://mopng.gov.in/en/pdc.

However, India only marginally increased its climate commitments at

the United Nations Framework Convention on Climate Change

(“UNFCCC”) Conference of the Parties climate summit in Glasgow

(“COP26” or “Glasgow Summit”) that concluded in 2021, and its eco-

nomic goals are not aligned with climate action needed to meet the

global temperature goals as established in the Paris Agreement, particu-

larly as the country moves towards increased privatization of fossil fuel

assets and infrastructure with a focus on natural gas build-out.

4

At COP26, Indian Prime Minister Narendra Modi announced five

updated and renewed climate targets for India, which if achieved, will

likely result in a massive overhaul of the nation’s energy sector in the

near future. They are: i) achieving 50% electricity power sourced from

renewable sources by 2030, ii) installing 500 gigawatts of solar capacity

by 2030, iii) reducing emission intensity per unit of GDP by 45% from

2005 levels by 2030, iv) cutting 1 billion tons of carbon dioxide emis-

sions from the current business-as-usual levels by 2030, and most impor-

tantly, v) reaching net zero emissions across the Indian economy

by 2070.

5

Bloomberg, PM Narendra Modi’s COP26 Goals Could Mean A Massive Energy Overhaul in India,

ECONOMIC TIMES: ENERGYWORLD (Nov. 4, 2021), https://energy.economictimes.indiatimes.com/

news/renewable/pm-narendra-modis-cop26-goals-could-mean-a-massive-energy-overhaul-in-india/

87519688.

For comparison, India’s commitments under the Paris

Agreement in its 2015 Intended Nationally Determined Contribution

(“NDC”) were to i) achieve 40% electric power capacity sourced from

non-fossil fuel sources (totaling 450 GW),

6

This includes 450 GW of renewable energy capacity by 2040. See Shreya Jai, India’s Climate

Mitigation Plans Face a Threat as Earth Warms, BUSINESS STANDARD (Aug. 17, 2021), https://www.

ii) reduce the emission

2.

3.

4. See generally infra Section II.

5.

6.

CLIMATE-RELATED RISK DISCLOSURES

2022] 83