Housing Development Finance : Climate-related Financial Disclosure - An Introductory Framework

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TABLE OF CONTENTS

Introduction	3
Setting the Context on Climate Change and Financial Disclosures	4
Core Elements of Climate-Related Financial Disclosures	7
Governance	9
Strategy	10
Risk Management	15
Metrics and Targets	19
Green Building Rating Systems in India	23
Considerations for Eco-Friendly Tenements	24
Data Quality Score for Mortgages as per PCAF Guidelines	25
Glossary and Abbreviations	26

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Climate change is not a long-termissue affecting companies in the future, it is one that needs consideration today.

INTRODUCTION

Housing Development Finance Corporation Limited (the Corporation) is a Non-Banking Financial Company - Housing Finance Company. The principal business is providing finance to individuals, corporates and developers for the purchase, construction, development and repair of houses, apartments and commercial properties in India.

As at September 30, 2022, loans under management stood at ₹ 6,90,285 crore. The break-up of the loan portfolio as at September 30, 2022 was: individual loans: 81%, construction finance: 9%, lease rental discounting: 6% and corporate loans: 4%. Since inception, the Corporation

has cumulatively financed over 9.8 million housing units and is committed to further increasing home ownership in the country.

The Corporation is committed to the principles elucidated in the National Guidelines for Responsible Business Conduct as prescribed by the Ministry of Corporate Affairs. The Corporation's Environmental, Social and Governance (ESG) Framework reiterates the organisation's commitment to sustainable strategies, policies and practices as a responsible corporate citizen.

The Corporation's reporting on ESG parameters has been through a combination of statutory and voluntary reporting. ESG disclosures, including those on climate change have been a part of the Corporation's public reporting. HDFC was the first company to publish its report under the Business Responsibility and Sustainability Report (BRSR) framework, set out by the Indian capital markets regulator, Securities and Exchange Board of India (SEBI). HDFC had published the BRSR for the financial year1 ended

March 31, 2021 and 2022 on a voluntary basis. From FY23 onwards, the BRSR is mandatory for the top 1,000 Indian companies, based on market capitalisation. The BRSR covers some of the disclosures recommended by the Task Force on Climate-related Financial Disclosures (TCFD). HDFC has also published its Integrated Report since FY18 on a voluntary basis with disclosures on natural capital.

For 2022, the Corporation received a 'B' score in its response to the CDP Questionnaire on Climate Change, which indicates that the Corporation is taking co-ordinated action on climate issues. As per CDP, this score is higher than the average score of the financial services sector as well as the global average performance.

The Corporation recognises that climate change entails both, risks and opportunities and it is imperative to transition to a greener and safer environment.

This report attempts to provide a backdrop of climate- related issues at a rudimentary level in order to sensitise a wider group of stakeholders.

This report endeavours to provide an introductory framework based on some of the recommendations of the TCFD. This is being done voluntarily by the Corporation so as to commence the journey of reporting more incisively on climate-related disclosures. The Corporation is at an early stage of reporting under this framework. Globally too, such disclosures are still evolving. The Corporation acknowledges that this report is a work-in-progress, but more importantly, is reflective of the Corporation's commitment towards raising its own bar on ESG disclosures.

1Financial year is for the period April 1 to March 31

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SETTING THE CONTEXT ON CLIMATE CHANGE AND FINANCIAL DISCLOSURES

Financial Stability Board (FSB)

The FSB was established in 2009 under the aegis of G-20 countries. FSB is an international body that monitors and makes recommendations about the global financial system and is headquartered in Switzerland. The objective is to promote global financial stability. The FSB co-ordinates with national financial authorities and international standard setting bodies to address vulnerabilities and develop regulatory, supervisory and other financial sector policies in the interest of financial stability.

India is an active member of the FSB2 and is represented by the Ministry of Finance - Department of Economic Affairs, Reserve Bank of India (RBI) and SEBI.

Task Force on Climate-related Financial Disclosures (TCFD)

The FSB created the TCFD in recognition of the significant risk climate change poses to the global financial sector. TCFD is a guidance framework to help organisations better understand and disclose their climate-related risks and opportunities to their stakeholders.

In 2017, the TCFD recommendations report outlined the framework which focuses on four core elements - governance, strategy, risk management, and metrics and targets.

The Corporation has been a supporter of the TCFD framework since June 20213.

RBI's Discussion Paper on Climate Risk and Sustainable Finance

In July 2022, the RBI's Department of Regulation issued a discussion paper on 'Climate Risk and Sustainable Finance'. The discussion paper suggested that regulated entities could explore aligning their climate-related financial disclosures based on the TCFD framework.

Regulated entities could initially make such disclosures on an annual basis and could adopt a 'comply-or-explain' approach.

The Corporation is a Non-Banking Finance Company - Housing Finance

2NoteFSB.pdf (dea.gov.in)

3Supporters | Task Force onClimate-RelatedFinancial Disclosures(fsb-tcfd.org)4Emissions Gap Report 2022 - United Nations Environment Programme5Investment Sizing India's 2070Net-ZeroTarget, CEEW

Company and is a regulated entity of the RBI. The Corporation has shared its feedback on the above-mentioned discussion paper with the RBI. Final guidelines from the RBI are awaited.

India: G-20 Presidency

India assumed the G-20 Presidency on December 1, 2022. It is driven by the underlying vision of 'Vasudhaiva Kutumbakam', translated as The World is One Family.

The motto of India's G-20 Presidency is 'One Earth, One Family, One Future'. One of the mainstays of India's G-20 Presidency is Lifestyle for Environment (LiFE). The objective of LiFE is to put the individual at the centre of the discourse on climate change so as to sensitise that lifestyle choices can make a significant change in arresting the impending climate crisis.

Though India is the world's third largest GHG emitter by volume, the country's per capita emissions of 2.4 tCO2e (tonne carbon dioxide equivalent) is far below the global average of 6.3 tCO2e4. This is despite having 17% of the world's population. India is committed to focusing on a citizen centric approach to combat climate change.

India's Low Carbon Development Strategy

In November 2022, during the 27th Conference of Parties (COP27), India submitted its report 'India'sLong-Term,Low Carbon Development Strategy'to the United Nations Framework Convention on Climate Change (UNFCCC). The report elucidates that India will strive towards net-zero by 2070 through low carbon strategies for development in accordance with national circumstances, while keeping within its fair share of the global carbon budget. India also maintains that the global carbon budget must work on the principles of equity and climate justice.

A study by the Council of Energy, Environment and Water (CEEW) has estimated that India will need cumulative investments of US$ 10.1 trillion to achieve net zero emissions by 20705.

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In November 2022, the Ministry of Finance, Government of India approved the Sovereign Green Bonds Framework of India6. The framework strengthens India's commitment on climate change. These green bonds will generate proceeds for investment in public sector green infrastructure projects, which will help reduce the carbon intensity of the economy. Renewable energy, clean transportation, climate change adaptation, green buildings amongst others are categorised as eligible green projects under the framework. RBI has announced the maiden issue of Sovereign Green Bonds (SGrB) in January 2023.

Emissions in Buildings

As per the report'From the Ground Up: AWhole-SystemApproach to Decarbonising India's Buildings Sector'by the National Institute of Urban Affairs and RMI, building operations in India account for one-thirdof its energy use and approximately another 10% of the country's energy is used in the production of building material and construction of new buildings. In the absence of preemptory energy efficiency improvements and policy measures, the buildings sector is estimated to consume over three times more energy by 2050 than what is consumed currently7.

In the building sector, there are two key greenhouse gas emissions (GHG) -- embodied and operational emissions. Embodied emissions refer to GHG emissions arising from the manufacturing, transportation, installation, maintenance and disposal of the building and construction materials. Operational emissions refer to the energy used in managing and maintaining the functioning of a building, which includes heating, cooling, lighting and other power usage in the building.

Reducing emissions from the building sector requires an integrative approach by utilising low carbon design and construction, low carbon technologies, reducing operation building energy needs and provision of access to clean energy supply to buildings.

Green Buildings in India

Studies show that green buildings can save up to 30% of energy and up to 50% of water8. Through sustainable design, construction and operations,

green buildings are climate resilient, consume less water, optimally use energy, conserve natural resources, generate less waste and enhance biodiversity. From an economic point of view, green buildings reduce the operating costs of buildings.

It is estimated that over three-fourths of the buildings required by 2050 are yet to be constructed in India9. This also means that India can leapfrog to green buildings which will be favourable for the overall environment and the Indian economy. Currently, buildings rated by green building rating programmes constitute approximately 5% of the Indian buildings market share10. Indian rating systems for green buildings are voluntary (Refer Annex 1).

HDFC's Commitment to Climate Change

The Corporation is the pioneer of housing finance in India. As India's first retail housing finance company set up in 1977, the Corporation has remained committed to enabling more Indians to become homeowners. The Corporation aspires to lead the financing of green homes in India. Yet, the Corporation recognises that it alone cannot improve the energy efficiency of the homes it finances. Towards this end, the Corporation is committed to working with the central and state governments, regulators, industries in the real estate supply chain, real estate developers and other key stakeholders to help its customers in the transition to greener residential and commercial real estate.

As a responsible corporate citizen, the Corporation is cognisant of the need to be climate conscious, it recognises both, the risks and opportunities that climate change presents and stands committed to supporting the country's targets and pathways towards achieving its climate-related targets. The Corporation is committed to funding affordable, smart and green housing in the country.

The Corporation will continue to focus on further embedding climate considerations in all its spheres of activity. It will strive to improve its climate change risk management capabilities, whilst enhancing its understanding of climate change and its impact on stakeholders.

6Framework for Sovereign Green Bonds.pdf (dea.gov.in)

7From the Ground Up: AWhole-SystemApproach to Decarbonising India's Buildings Sector, Report 2022, by National Institute of Urban Affairs and RMI8Indian Green Building Council

9De-CarbonisingIndia Charting a Pathway for Sustainable Growth - McKinsey, October 202210India'sLong-termLow-CarbonDevelopment Strategy

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