From compliance architecture to decision-making competence, climate risk is forcing Indian boards to prove whether governance can guide capital, strategy and accountability under long-term uncertainty

By: Chandni Khosla Independent Director – Retas (SBI Neev Fund Investee Co), Senior Executive Fellow -Harvard Kennedy School

Corporate governance in India has evolved over decades through successive phases of correction and consolidation. Each phase has been shaped by market stress, regulatory learning, and changing investor expectations. Seen over a longer arc, India’s governance story is cumulative: reforms have progressively tightened board accountability, strengthened disclosure discipline, and improved the predictability of regulatory outcomes.

In the early 2000s, India’s listed-company governance relied heavily on disclosure norms and board structures introduced through Clause 49 of the Listing Agreement. It drew from global best practices and improved formal governance architecture, but enforcement remained uneven and board effectiveness varied significantly across issuers.

From Compliance To Credibility
The Satyam scandal in 2009 became a defining inflection point because it exposed the gap between formal compliance and substantive oversight. It was not only a corporate failure; it revealed weaknesses in board challenge, audit effectiveness, and gatekeeping functions.

Investor perception was reflected in international benchmarking at the time, including CLSA’s CG Watch, which assessed governance not merely by rules but by outcomes, enforcement, and shareholder protection.

The response that followed was structural. The Companies Act, 2013 codified directors’ duties and strengthened audit committee responsibilities, independent director expectations, and accountability mechanisms. SEBI then consolidated and tightened listed-company governance norms through the Listing Obligations and Disclosure Requirements, while the Kotak Committee reforms sharpened the focus on board independence, related-party transactions, and disclosure quality.

By the late 2010s, these reforms began to show up in comparative assessments of governance across emerging markets, including CLSA CG Watch and governance indicators embedded in global investor frameworks. India’s standing improved on disclosure quality, minority shareholder protection, and regulatory clarity. In relative terms, India also compared more favourably with China on several governance dimensions that global investors watch closely, particularly transparency, board independence in practice, and predictability of disclosure and enforcement, even as China continued to deliver scale and corporate capacity in many sectors.

From Disclosure To Judgment
This governance improvement, however, was driven largely by structural and procedural reforms. Boards became better constituted, reporting systems strengthened, and listed company compliance became more consistent. Climate change now tests a different aspect of governance: not whether a board has the right structures, but whether it has the competence to make decisions under deep uncertainty.

Until recently, climate oversight in Indian boardrooms was treated primarily as a reporting obligation. Sustainability disclosures were reviewed, targets were noted, and responsibility was frequently delegated to ESG or CSR committees or pushed several layers below the board. That approach was understandable when climate expectations were largely disclosure-led and the financial materiality of climate risk was still emerging.

Today, climate considerations influence capital expenditure decisions, asset life assumptions, supply-chain resilience, insurance availability, financing costs, and long-term competitiveness. These are strategic and financial questions, and they therefore require board-level engagement. Investor conversations have correspondingly moved beyond headline emissions metrics to underlying assumptions. Boards are increasingly expected to engage with questions such as the credibility of transition plans, the robustness of regulatory and market scenarios, the exposure of key assets to impairment risk, and the way capital is being prioritised under uncertainty.

Where Boards Fall Short
Many Indian companies began by assigning climate to sustainability or ESG committees.

Committees remain useful for analysis and monitoring, but they cannot substitute for board judgment when decisions involve long asset lives and balance-sheet commitments. When boards approve major capex, extend the life of carbon-intensive assets, restructure supply chains, or commit to long-dated investment cycles, climate risk is already embedded in those decisions. The expectation emerging in investor stewardship is that boards, collectively, demonstrate enough competence to test management assumptions, evaluate trade-offs, and oversee execution, even if not every director is a climate specialist.

This shift exposes three practical gaps in Indian board practice. First, climate discussions remain disproportionately compliance-oriented.Boards review disclosures and ratings but often devote less attention to how climate risk influences strategy, investment sequencing, and competitive positioning.

Second, board skills disclosures focus heavily on independence and diversity but rarely explain whether boards have the capability to assess transition risk, sector-specific pathways, and climate-related financial exposure in a way that informs decision-making.

Third, accountability is not always well defined. Targets may be approved, but escalation mechanisms, consequence management, and board-level tracking of execution quality are still inconsistent across companies.

The Next Governance Test
Addressing these gaps does not require new laws or additional committees. India’s governance. The framework is already substantial. What is required is more deliberate use of existing structures. Climate risk should be examined within audit, risk, and strategy discussions as part of the normal board calendar. 

Director education should be ongoing and sector-specific, focused on the transition choices relevant to the business rather than generic climate concepts. Board evaluations should consider whether climate considerations are influencing real decisions, not only whether disclosures are complete.

Investor engagement also needs to mature. Boards that can explain trade-offs, timelines, and uncertainties build credibility, particularly when transition choices carry near-term costs. In a market where global capital is increasingly selective, governance quality will continue to influence access to capital and its cost.

Climate competence at the board level is becoming a visible marker of governance maturity because it signals that risks are understood, decisions are deliberate, and long-term value is being actively stewarded.

India has a clear opportunity. Over the past two decades, governance reforms have narrowed the gap between India and several emerging-market peers. Climate competence is now emerging as the next differentiator, both for valuation and for the credibility of transition strategies.

Undeniably, Corporate governance in India has progressed through steady reform and now climate change represents the next stage of that evolution because it changes the questions boards must answer. Boards are moving from approving disclosures to governing trade-offs that shape capital allocation, risk management, and long-term outcomes. Those that invest in this capability will strengthen investor confidence and, over time, improve how markets price governance quality.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication.