Climate change shaping business solvency in India

Recently, the Indian Supreme Court in a decision penned by Chief Justice Dr. Chandrachud in a matter relating to laying of power lines endangering the lives of Godavan or Greater Indian Bustard has for the very first time recognised adverse impact of climate change impeding the constitutional guarantee of the right to equality (Article 14) and life (Article 21). Climate Change is not only affecting constitutional guarantees but is creating ripples in the insolvency and bankruptcy ecosystem.

- CHARU MATHUR

The revolutionary, Insolvency and Bankruptcy Code,2016 which put creditors in the driving seat, sprinted India's rank in the World Bank Group's Ease of Doing Business Index from 136 to 52 in terms of resolving insolvency. In 2021, BEE or Business Enabling Environment, an approach used by the World Bank to measure the business and investment climate worldwide replaced the EoDB index. BEE details how environmental obligations affect Insolvency Resolution, putting in focus the debtor's ability to fulfill environmental liabilities.

Consider the case of Pacific Gas and Electric Company (PG&E) in California, USA.

After being held accountable for the 2018 wildfires, which claimed 86 lives and destroyed thousands of homes, PG&E faced an onslaught of over 750 lawsuits demanding $30 billion. The crisis forced the energy giant into bankruptcy in 2019.

It emerged with a restructured board and substantial compensation of $5.4 billion in cash along with 22.19% stock into a trust for victims of wildfires. This showcases how environmental liabilities can push corporate giants to the brink of bankruptcy.

In India, the aftermath of the Bhopal Gas Tragedy led to the enactment of the Public Liability Insurance Act of 1991, requiring companies dealing with hazardous chemicals to carry compulsory insurance. This created an alternative forum for victims to claim compensation.