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In a revealing first-of-its-kind analysis, India’s leading Asset Management Companies (AMCs) are found to be falling short in addressing climate risks within their portfolios. According to a recent report by the think tank Climate Risk Horizons, none of the top 12 AMCs in India have conducted climate-related scenario analyses or stress testing, raising concerns about the financial sector’s preparedness for the risks posed by climate change.
The report, which assessed the climate preparedness of the largest AMCs managing approximately $5.33 trillion in mutual funds during the financial year 2024, paints a worrying picture. Most of these firms lack robust policies to exclude investments in the coal sector and fail to disclose the volume of carbon emissions they directly finance. Among the 12 AMCs evaluated, Kotak Mahindra Asset Management Company stands out as the only one to exclude coal from its Environmental, Social, and Governance (ESG) scheme. Meanwhile, Nippon Life India AMC is the sole player to have adopted a target to transition to low-emission portfolios.
Despite mounting global pressure for financial institutions to integrate climate risks into their strategies, the report indicates that Indian AMCs are lagging in taking proactive measures. While some firms have started to prioritize climate concerns through emissions reporting, the majority confine their actions to mandatory guidelines issued by the Securities and Exchange Board of India (SEBI) and limit climate-preparedness efforts to ESG-specific funds.
A Lack of Comprehensive Climate Action
The study evaluates AMCs based on ten key criteria, including Responsible Investment, Board Oversight, Coal Policy, ESG Integration, Stewardship, and Net Zero Targets. It reveals that less than half of the AMCs have formal structures in place to monitor and manage climate risks at the board level. Although two-thirds of these firms offer ESG or sustainability-themed mutual funds, comprehensive climate action remains absent.
“Asset Management Companies must treat climate risk as the core financial challenge it is by strengthening Board oversight, stress testing, and meaningful disclosures. There is a need to expand sustainable investment products to address both sides of the gap,” emphasized Sagar Asapur, co-author of the Climate Risk Horizons report.
One of the report’s significant findings is that while many AMCs promote an “active ownership” approach, where they engage with investee companies on ESG issues, few have adopted stringent exclusionary policies. As a result, sectors like transportation, construction, auto, and power remain vulnerable to both physical risks from extreme weather and transition risks from evolving regulatory frameworks.
Retail Investors at Risk
The implications of this inaction extend beyond the corporate sphere, directly affecting retail investors who may be unknowingly exposed to substantial climate risks. “Today’s retail investors are highly exposed to climate risks through equity schemes. Sectors like transportation and construction are vulnerable to physical risks from extreme weather events, while investments in the auto and power sectors are exposed to transition risks amid changing policies,” warned Ritaj Kalaskar, another co-author of the report.
Given India’s commitment to achieving its climate and sustainability targets, the mutual fund industry plays a critical role in aligning investments with a net-zero future. However, the report suggests that the sector’s contribution to a low-carbon economy will remain limited without substantial changes to how AMCs manage and disclose climate risks.
Call for Greater Accountability and Transparency
A majority of the 12 AMCs examined are signatories to the United Nations Principles for Responsible Investment (UN PRI), reflecting some acknowledgment of sustainable practices. Yet, this commitment has yet to translate into comprehensive climate strategies. Climate Risk Horizons urges AMCs to enhance their climate risk management by incorporating climate stress testing, improving transparency in emissions disclosure, and extending their sustainable investment portfolios.
As regulatory scrutiny intensifies and the impacts of climate change become more severe, there is growing urgency for AMCs to move beyond symbolic ESG offerings and implement robust, forward-looking policies. Failure to do so not only jeopardizes long-term financial stability but also undermines India’s broader environmental goals.
“For India to meet its climate and sustainability goals, the mutual funds industry needs to ensure that these assets are wisely invested such that its portfolio is compatible with a Net Zero future,” the report concludes.
As investors become increasingly aware of the financial risks posed by climate change, the spotlight will remain on whether India’s AMCs can rise to the challenge and play a more meaningful role in facilitating the country’s transition to a sustainable future.
References:
https://climateriskhorizons.com/research/risking-alpha.pdf
https://climateriskhorizons.com/research/Still-Unprepared.pdf
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