India’s Top AMCs Score Low on Climate Risk Preparedness, Report Highlights Major Investment Gaps

India’s leading asset management companies (AMCs) continue to face significant gaps in their preparedness for financial risks associated with climate change, according to a new assessment released by research group Climate Risk Horizons. The report, titled Risking Alpha II, evaluates the climate risk management practices of 12 of the country’s largest fund houses, which collectively manage more than 80% of the domestic mutual fund industry’s average assets. While the assessment identifies some improvements in disclosure and governance practices compared with 2025, it highlights persistent weaknesses in portfolio-level climate risk management, emissions reporting and investment decisions.

The assessment evaluates the fund houses across ten critical criteria covering governance, climate strategy, risk management and emissions metrics, with a maximum score of 20 points. UTI Asset Management Company secured the highest position with 12 points, improving from its third-place ranking in the previous year. SBI Funds Management followed with 11 points, while ICICI Prudential, HDFC, Nippon Life India, Kotak Mahindra and DSP Asset Managers shared third place with 10 points each.

Other major fund houses, including Axis, Mirae Asset, Tata and Bandhan, recorded modest improvements compared with their earlier performance. However, the report indicates that overall progress across the sector remains limited, with most asset managers continuing to operate within lower-to-middle performance categories. The findings suggest that climate considerations are yet to become an integral part of investment decision-making across India’s mutual fund industry.

One of the most significant concerns identified in the assessment is the absence of climate-related scenario analysis and portfolio stress testing. None of the 12 AMCs evaluated have disclosed the use of standardized climate scenarios developed by international organisations such as the Intergovernmental Panel on Climate Change (IPCC), International Energy Agency (IEA) or Network for Greening the Financial System (NGFS).

Such assessments are important for understanding how investment portfolios could perform under different climate conditions, including extreme weather events, rising temperatures and policy-driven transitions away from fossil fuels. Without these tools, investors have limited information about the potential financial exposure of their investments to climate-related developments.

The report also highlights inadequate policies concerning coal investments and thermal fossil fuel expansion. Kotak Mahindra AMC is the only fund house among those assessed to have disclosed a coal restriction. However, the restriction applies only to one ESG-focused fund rather than the company’s entire investment portfolio. Other mainstream mutual fund portfolios continue to hold investments in high-emission sectors, including thermal power generation, coal mining and utilities.

Emissions disclosure represents another major weakness across the industry. Several asset managers have started reporting Scope 1 and Scope 2 emissions associated with their own business operations, including corporate offices. However, none of the assessed AMCs disclose Scope 3 Category 15 financed emissions, which represent the emissions associated with their investment activities and portfolio holdings. This leaves investors without a comprehensive understanding of the carbon footprint and climate-related exposure of the assets managed by these institutions.

To address these shortcomings, Climate Risk Horizons has recommended stronger regulatory intervention from the Securities and Exchange Board of India (SEBI). The report calls for mandatory disclosure of financed emissions using standardised frameworks such as the Partnership for Carbon Accounting Financials (PCAF). It also recommends AMC-wide climate transition plans, restrictions on financing new coal expansion and the introduction of climate-related escalation mechanisms within stewardship policies.

The findings underline the growing importance of climate risk assessment in India’s financial sector. As climate change increasingly influences corporate performance, operating costs and asset valuations, asset managers will need to strengthen portfolio-level risk assessments and integrate climate considerations into investment strategies to support long-term financial stability and investor protection.