Climate risk is no longer a distant environmental concern for India Inc. It is becoming a business variable that can affect revenues, operating costs, asset values, insurance cover, supply-chain continuity, financing conditions, and long-term competitiveness. For boards, CFOs and risk leaders, the question is no longer whether the climate crisis will matter to business performance. It is how quickly organisations can understand their exposure and translate uncertainty into informed decisions.
The recent heatwave across large parts of India signals why climate awareness and resilience planning matter. In late April 2026, temperatures reached 47.6 degrees Celsius in Banda, Uttar Pradesh, while several major urban centres recorded temperatures far above seasonal norms. According to climate research platform ClimaMeter, human-induced climate crisis intensified the event by nearly 2 degrees Celsius, exposing around 44 million people and an estimated $ 341 billion in economic activity to extreme heat risk.
Rising temperatures and humidity are increasing pressure on electricity networks, disrupting labour productivity, and creating inflationary pressures across sectors. At the same time, climate-related disruptions are becoming more frequent, more costly, and increasingly difficult to predict using traditional risk management approaches.
Heatwaves are raising energy demand and operational risks across industries that depend on outdoor work, temperature-sensitive infrastructure, and reliable power supplies, while floods continue to damage roads, ports, and other infrastructure critical to moving goods and people. Water scarcity is also emerging as a significant constraint for sectors ranging from manufacturing and power generation to food processing and technology.
For Indian businesses, the implication is clear: Climate risk is increasingly a financial and strategic risk that requires forward-looking assessment, management, and reporting.
{{/usCountry}}For Indian businesses, the implication is clear: Climate risk is increasingly a financial and strategic risk that requires forward-looking assessment, management, and reporting.
{{/usCountry}}India’s sustainable finance framework is also evolving quickly. The Reserve Bank of India’s draft disclosure framework on climate-related financial risks signalled expectations around governance, strategy, risk management, and metrics and targets for regulated entities. The subsequent launch of RBI-CRIS, a climate risk information platform, further underlines the growing need to bridge climate data gaps and help financial institutions assess climate-related risks more effectively.
At the corporate level, SEBI’s Business Responsibility and Sustainability Reporting framework applies to the top 1,000 listed entities, while BRSR Core and value-chain disclosure expectations are pushing companies toward more comparable, decision-useful sustainability information. The ministry of finance’s draft Climate Finance Taxonomy is another important development, aimed at helping investors identify activities consistent with India’s climate goals and transition pathway. Together, these developments signal a shift from sustainability disclosure as a compliance exercise to climate information that can influence risk management, investment decisions and capital allocation.
This is why climate stress testing is becoming essential. It helps companies examine how different physical and transition scenarios could affect revenues, costs, assets, operations, financing needs, and long-term growth.
What would happen to a manufacturer if water availability in a key industrial hub declined sharply over the next decade? How would recurring floods affect logistics costs and delivery reliability? What would prolonged heatwaves mean for workforce productivity, insurance costs, and operational continuity? The answers help organisations identify vulnerabilities and build mitigation plans before the risks materialise, rather than after.
Recent heatwaves provide a useful example. Climate stress testing can help organisations assess how prolonged periods of extreme heat, rising cooling costs, water constraints, higher employee health risks, or disruptions to local infrastructure could affect profitability and operational resilience under different future scenarios. It should also help organisations evaluate transition risks, including policy shifts, carbon pricing, changing technology, customer expectations, export competitiveness, and the capital expenditure required to decarbonise operations.
The value of stress testing is not in predicting one precise future, but in helping management compare plausible futures and decide where action is needed today.
For Indian companies, the transition dimension is becoming just as important as the physical one. Measures such as carbon pricing, carbon-credit markets and the EU's Carbon Border Adjustment Mechanism (CBAM) are turning emissions intensity into a competitiveness, margin, and capital-allocation issue for sectors such as steel, aluminium, cement, power, and infrastructure.
The questions for corporate boards are straightforward. Which assets and operations carry the greatest climate exposure? How resilient are supply chains under different scenarios? How might disruption affect future earnings and capital requirements? What investments are needed today to protect value tomorrow?
Forward-looking organisations are increasingly treating climate stress testing as a strategic planning tool, not just a regulatory exercise. By testing physical and transition scenarios, companies can better understand implications for capital allocation, supply chain resilience, insurance costs, financing terms, and long-term competitiveness. Institutional investors globally are already weighing climate exposure in capital allocation decisions, and companies are under growing pressure to show they understand their exposures and have credible plans to manage them.
None of this happens without people skilled in both sustainability and financial risk. Climate stress testing sits at the intersection of scenario analysis, enterprise risk management, finance, operations, sustainability, and strategic planning. The opportunity now is to build this capacity inside risk, credit, and finance teams directly, rather than leaving it siloed within sustainability departments, so that talent development keeps pace with the modelling itself.
Climate-related disruptions are set to become more frequent and severe, while transition pressures are becoming more financially material. For India Inc., the question is no longer whether climate risk will affect business performance. It is whether organisations can translate climate uncertainty into informed strategic decisions. Climate stress testing is how they get there, and the businesses that build this capability now will be better placed to protect value, allocate capital, strengthen resilience, and compete through what comes next.
(The views expressed are personal)
This article is authored by Michael Sell, senior vice president, and global head of institutional outreach, GARP.