India's exports face higher risk due to climate inaction, warns BCG

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India's export-driven businesses in sectors such as aluminium, iron and steel that face international regulatory shocks are increasingly exposed to risk due to climate inaction threatening their profits, operations, and long-term viability, according to global consulting firm BCG.

India is among the top 10 countries most affected by extreme weather events, as the 'Climate Risk Index 2026' launched at COP30 reveals, and the cost of inaction for India is too big to ignore, BCG Managing Director and Senior Partner, Asia Pacific Leader, Climate & Sustainability, Sumit Gupta, told PTI in an emailed interview.

Citing data from RBI and WEF 2024, he said 4.5 per cent of India's GDP by 2030 is at massive risk of erosion due to climate-induced extreme events, and by the end of the century, climate-related challenges could cost India between 6.4 per cent and over 10 per cent of its national income.

"Businesses face the direct brunt of these risks," he said, adding that due to climate-induced extreme events, physical infrastructure assets are wiped off, labour hours are lost, and productivity impacted, while there can also be indefinite delay in project completion and declining investment efficiency in high climate risk regions.

When asked about the financial implications of climate change on Indian companies and businesses, BCG Managing Director and Partner, India Lead, Climate & Sustainability, Anirban Mukherjee, said, "The impact is more pronounced today for export-driven businesses in India, especially hard-to-abate ones such as aluminium, iron and steel, that face international regulatory shocks."  EU's carbon border adjustment mechanism (CBAM) is expected to impact USD 7.7 billion or 10-11 per cent of India's export to the EU, he noted.

Mukherjee further said, "Climate inaction is increasingly exposing businesses to escalating risks that threaten profits, operations, and long-term viability."  BCG's estimates suggest that direct climate risks alone will put 5 per cent to 25 per cent of 2050 EBITDA at risk for global businesses, he added.

Both Gupta and Mukherjee, however, noted that companies in India are increasingly recognising the magnitude of the climate challenge -- one that not only threatens profitability but also puts long-term sustainability of the business at tremendous risk.

For instance, one-third of large Indian companies rate climate strategy as one of their top three material issues based on Corporate Sustainability Assessment for 187 India headquartered companies representing 85 per cent of market cap, Gupta said.

Yet, he said, while about 40 per cent of India-headquartered firms conduct physical risk assessments, much of corporate India still lags behind.

On the impact of climate shocks on supply chain, especially MSME suppliers, Mukherjee said the failure of MSMEs to cope with such climate risks has a direct impact on the supply chain of Indian corporates.

Most large corporates in manufacturing, automotive, consumer goods, textiles, and construction source almost 60-70 per cent of their components or services from MSMEs, he said, citing the example of the automotive sector, where about 70 per cent of parts and sub-assemblies come from tier-2 and tier-3 MSME suppliers.

Noting that MSMEs are also a driving force in India's export economy, accounting for around 45 per cent of India's total export value basket, Mukherjee said, "Almost 20-30 per cent of India's MSME exports could eventually face direct or indirect CBAM-related compliance or cost exposure.