Our approach to climate risk management
We recognise the significance of climate change as both a potential risk to our businesses and an opportunity to lead the transition towards a low-carbon economy. Our comprehensive Climate Change Risk Assessment (CCRA) includes a detailed analysis of climate risks and opportunities across our diverse business sectors, aligned with leading global frameworks such as the IFRS S2 guidelines.
Our climate risk management process adheres to the four pillars of the TCFD framework: governance, strategy, risk management, and metrics & targets. We develop comprehensive risk mitigation and adaptation plans to address the physical and transition risks identified across our business units, aiming to strengthen our operations, supply chains, and communities. These plans are regularly reviewed and updated to incorporate the latest scientific research and stakeholder feedback, ensuring they remain robust and effective.
Climate Governance
AEL has instituted a robust climate governance framework to navigate the intricate challenges posed by the risks and seize the potential opportunities related to climate change. Central to our governance structure is our Board-level ESG committee - Corporate Responsibility Committee (CRC), comprised 100% independent directors. CRC is charged with the oversight and management of our climate-related endeavours. It acts as a vital bridge, communicating the relevant climate issues, actions, and progress of our initiatives on a quarterly basis to the Board, thereby fostering a culture of transparency and accountability.
The Risk Management Committee (RMC) is also integral to our commitment to sustainability, ensuring that potential environmental, social, and governance risks are systematically identified and addressed, reinforcing our resilience and long-term value creation. The Climate-change related regulatory and policy risks, both at central and state level, are overseen by the Board-level Risk Management Committee. Climate considerations are integrated into our enterprise risk management practices to ensure effective navigation of evolving risks and uncovering of new opportunities.
AEL’s executive management level internal ESG committee chaired by the Chief Sustainability Officer is responsible for assessing and managing climate-related risks and issues and reports to the Board-level CRC committee.
Process of Identifying Climate Risks
We employ a systematic and thorough approach to identify and evaluate the various climate-related risks that may impact our diverse range of operational sectors. We skilfully integrate climate considerations into our strategic planning and business models, ensuring these factors are reflected in the financial planning and overall decision-making processes. This multifaceted approach begins with recognising potential risks, carefully analysing the likelihood of their occurrence, and categorising them based on their significance and potential impact. The assessment includes our own operations as well as upstream and downstream activities, wherever relevant.
The Company takes a comprehensive view of risk, considering a broad spectrum of categories, such as strategic risks that could affect long-term goals, operational risks that may disrupt daily functions, financial risks that could influence monetary stability, regulatory risks stemming from evolving legislation, environmental risks tied to ecological impacts, and reputational risks that could affect stakeholder perceptions. By taking this holistic view, we are well-equipped to proactively address these challenges, implementing effective mitigation and adaptation strategies to safeguard our operations by reinforcing our resilience against climate-related impacts.
Scenario Analysis
For climate-related physical and transition risks, comprehensive qualitative and quantitative climate-related scenario analysis was conducted, considering the following:
| Category | Scenario | Description | Risks Covered | Time Horizons |
|---|---|---|---|---|
| Physical Risk | SSP1-2.6 | A sustainable world with low inequality and resource use, aiming for 2.6 watts/m² of radiative forcing by 2100, resulting in low emissions and moderate climate change with global warming of 1.8°C by 2100. |
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| SSP2-4.5 | A "middle of the road" scenario with uneven development and moderate sustainability efforts, targeting 4.5 watts/m² by 2100, leading to intermediate emissions and global warming of 2.7°C by 2100. | |||
| SSP5-8.5 | A fossil-fuel-driven world with high economic growth and energy use, reaching 8.5 watts/m² by 2100, causing significant climate change impacts with global warming of 4.4°C by 2100. | |||
| Transition Risk | Current Policies Scenario (Above 2°C) | Assumes only current climate policies are maintained, leading to high physical risks and potential global warming of 3°C or more by 2100. |
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| Net Zero 2050 (Below 2°C) | Aims for 1.5°C global warming by 2050 with stringent climate policies, achieving net zero CO₂ emissions by 2050. |
Business-Wise Physical Risks
The following heatmap depicts the risks across our primary business units under the different climate scenarios:
| Risk | Scenario | Solar | Airports | Data Center | Natural Resources | ||||
|---|---|---|---|---|---|---|---|---|---|
| Mundra | JIAL | MIAL | Chennai | Talabira | GP III | PEKB | Suliyari | ||
| Heat Stress | SSP1 2.6 | ||||||||
| SSP2 4.5 | |||||||||
| SSP5 8.5 | |||||||||
| Heat Wave | SSP1 2.6 | ||||||||
| SSP2 4.5 | |||||||||
| SSP5 8.5 | |||||||||
| Flood Risks | SSP1 2.6 | ||||||||
| SSP2 4.5 | |||||||||
| SSP5 8.5 | |||||||||
| Cyclone | SSP1 2.6 | ||||||||
| SSP2 4.5 | |||||||||
| SSP5 8.5 | |||||||||
| Wildfire* | SSP1 2.6 | ||||||||
| SSP2 4.5 | |||||||||
| SSP5 8.5 | |||||||||
| Water Stress | SSP1 2.6 | ||||||||
| SSP2 4.5 | |||||||||
| SSP5 8.5 | |||||||||
| Drought | SSP1 2.6 | ||||||||
| SSP2 4.5 | |||||||||
| SSP5 8.5 | |||||||||
Risk
4While we have analysed the possibility and impact of wildfire in areas surrounding our business locations, we have not identified any significant risk against it in any of the climate scenarios. Hence, we have not included a detailed impact assessment/ mitigation strategy for the same.
Physical Risks – Impact, Adaptation and Mitigation
| Risk | Risk Category | Capitals Impacted | Impact | Adaptation / Mitigation Strategy |
|---|---|---|---|---|
| Heat Stress & Heat Waves | Chronic (Heat stress) & Acute (Heat wave) |  |
Under moderate climate scenarios (SSP 1-2.6 and SSP 2-4.5), rising temperatures will increase cooling demands, leading to higher operational costs, particularly in solar manufacturing and data centers. The businesses may face productivity losses, health risks, and increased absenteeism. In the worst-case scenario (SSP5-8.5), extreme heat events will become more frequent, causing widespread power outages, additional strain on grid electricity, and potential fire hazards in industrial operations. | Since heat stress and heat waves can increase cooling demands and energy consumption, energy-efficient cooling systems and smart thermostats are deployed to ensure energy savings. We use reflective materials, cool pavements, and green infrastructure (e.g., green walls) to reduce the indoor temperatures. Moreover, we implement rotational work shifts to limit heat exposure during heat waves. |
| Flood | Acute |  |
In scenarios with moderate warming (SSP2-4.5), heavy rainfall events will increase the likelihood of flash floods, disrupting airport operations, mining activities, and our solar manufacturing site. Flooding can cause blackouts, infrastructure damage, and transportation delays. Under the extreme scenario (SSP5-8.5), more frequent and intense downpours could overwhelm stormwater drainage systems, leading to extended power outages and machinery failures in critical facilities. | We have installed efficient drainage systems, sump pumps, and backflow preventers and ensure adequate elevation for critical infrastructure. We also conduct periodic internal assessments to strengthen emergency response and disaster recovery plans. |
| Cyclones | Acute |  |
With global warming in the SSP2-4.5 scenario, the frequency and intensity of cyclones will increase, particularly affecting coastal facilities, leading to property damage, flight cancellations, and supply chain disruptions. In the extreme SSP5-8.5 scenario, cyclones will bring severe storm surges, further exacerbating flood risks. | We have undertaken significant efforts to strengthen cyclone-resilient infrastructure and reinforce buildings. We have also secured insurance coverage for disaster-related damage to our risk-prone assets. |
| Water Stress & Drought | Chronic (Water Stress) & Acute (Drought) |  |
Under SSP1-2.6, periodic water shortages will pose operational constraints, particularly for airports and mining operations that require large amounts of water. In the SSP2-4.5 scenario, prolonged droughts could reduce groundwater levels, impacting industrial processes and increasing reliance on costly water transportation. Under SSP5-8.5, severe drought conditions will result in long-term water shortages, affecting not only business operations but also local communities, leading to reputational risks. | We use real-time monitoring systems to optimise water use and have developed detailed contingency plans to conserve water including the implementation of water recycling technologies and development of seawater treatment plants to procure water from non-competitive sources. |
| Sea Level Rise | Chronic |  |
In the SSP2-4.5 scenario, gradual sea-level rise will increase flood risks in low-lying facilities, leading to infrastructure damage and potential operational downtime. By SSP5-8.5, coastal areas will face significant land erosion and frequent inundation, severely impacting industrial sites located near shorelines. Rising sea levels will also heighten storm surge risks, compounding the effects of cyclones. | We have integrated adaptation plans against sea level rise into our long-term asset development plans and undertake efforts to ensure critical infrastructure is elevated and construct seawalls to safeguard against sea-level rise. |
Transition Risks - Impact, Adaptation and Mitigation
| Risk | Risk Category | Capitals Impacted | Impact | Adaptation / Mitigation Strategy |
|---|---|---|---|---|
| Carbon Pricing & Emissions Regulations | Current and Emerging Regulatory Risk |
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Under Net Zero 2050 policies, businesses will face increasing carbon taxes and emission trading costs. In a moderate transition scenario, regulatory frameworks will gradually tighten, requiring significant investment in emission reduction technologies. Under an aggressive transition to Net Zero, high carbon costs will directly impact operational margins, making fossil fuel-based businesses less competitive. | We have undertaken a target to reduce our GHG emission intensity by 45% till 2030, in alignment with India’s goals and are working on integrating internal carbon pricing into our business decisions. We are also investing significantly into innovative decarbonisation solutions and exploring low-carbon technologies for large scale adoption. |
| Renewable Energy Policy Changes | Current and Emerging Regulatory Risk |  |
Government policies supporting renewables are expected to evolve under both moderate and ambitious transition scenarios. In a gradual shift, subsidies for solar and wind energy may be reduced, affecting the financial viability of large-scale projects. In a rapid transition scenario, mandatory renewable energy adoption could drive up compliance costs and disrupt supply chains. | We are exploring PPAs with multiple partners and aim to significantly increase our renewable energy usage to achieve 50% of our total electricity consumption by 2030, in line with India’s NDC commitments. |
| Market Demand Shifts | Market Risk |  |
In a moderate transition, industries will experience a steady shift towards cleaner energy, reducing demand for coal and other fossil fuels. In an accelerated transition, companies that fail to adapt quickly may face steep revenue declines and stranded assets. | We are heavily investing in clean energy solutions and developing towards one of the world’s most ambitious green hydrogen strategies, with production of green hydrogen and its derivatives, along with renewable energy equipment manufacturing to develop green business models and capitalise on evolving market trends. |
| Advancements in Technology | Technology Risk |  |
Technological advancements in solar manufacturing, energy storage, and carbon capture will play a crucial role in the transition to Net Zero. In a slow transition, early adopters of green technology will gain a competitive edge. In a rapid transition, companies that fail to invest in R&D will struggle with outdated infrastructure and higher costs. | We are prioritising investments in R&D to pilot and adopt emerging technologies. Low-emission technologies, as they become feasible, will be adopted. AEL became one of the first companies in Asia to successfully implement green hydrogen power fuel cell trucks in its mining operations. |
| Stakeholder & Investor Expectations | Reputation Risk / Legal Risk |  |
Investors and consumers are increasingly favouring companies with strong ESG commitments. In a moderate transition scenario, companies with poor sustainability disclosures may face increased borrowing costs and difficulty securing investments. In an accelerated transition, businesses failing to meet ESG benchmarks could lose market share and face lawsuits, leading to reputational damage. | We ensure transparent and comprehensive sustainability disclosures in line with global best practices leading among national reports and global frameworks. Our businesses are also exploring green bonds (Our renewable energy platform has established India’s largest sustainability linked financial framework) and aiming to align their decarbonisation strategies with international climate commitments (e.g. Science Based Targets initiative). |
Climate-Related Opportunities
Market: Capitalise on the growing demand for green energy, sustainable travel, and energy-efficient services. Explore renewable energy markets and diversify energy portfolios to offset declining fossil fuel demand.
Technology: Invest in R&D for advanced technologies, including solar, sustainable aviation fuels, energy storage, cooling systems, and Carbon Capture, Utilisation, and Storage (CCUS). Enhance efficiency and reduce emissions through innovative solutions.
Reputation: Improve sustainability practices, transparency, and community engagement to boost brand reputation, consumer trust, and stakeholder confidence. Differentiate with green certifications and visible sustainability efforts.
Financial: Leverage government incentives, reduce production costs, and forge partnerships to support long-term growth and expand market reach. Invest in R&D for sustainable solutions to gain a competitive edge.
For more details about the Climate Risks and Opportunities faced by our businesses and their impacts, including adaptation and mitigation strategies, please refer to our TCFD report.
