Climate risk discussion paper by the Reserve Bank of India
- September 16, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Climate risk discussion paper by the Reserve Bank of India
Subject :Economy
RBI’s paper on climate action has suggestions worthy of adoption.
About the discussion paper:
The paper highlights gaps in the way climate change as a material risk is treated by India’s banks. It diligently elucidates:
- Physical climate impact risks.
- It refers to the economic costs and financial losses resulting from the increasing frequency and severity of extreme climate change-related weather events such as acute physical risks and chronic physical risks.
- Transition loss risks
- The process of transition to reducing carbon emissions may have a significant impact on the economy. It includes:
- Cost due to changes in climate-related policies and regulations.
- Investment portfolios or reduction in cash flow due to emergence of newer technologies.
- Shifting sentiments and behaviour of customers.
- The consultation paper offers:
- Broad guidance,
- Illustrative examples and good practices for regulated entities around governance,
- Disclosures strategy, processes and the risk management structure to address climate risks, with valuable insights for consideration of boards.
- It provides more emphasis on the numerous financing opportunities.
- foreign capital through sustainability-linked loans and bonds.
- The process of transition to reducing carbon emissions may have a significant impact on the economy. It includes:
Initiatives by the RBI in climate change:
- In May 2021, it set up a Sustainable Finance Group within its Department of Regulation
- It aims to coordinate with other national and international agencies on issues relating to climate change.
- The Reserve Bank released on its website the results of a Survey on Climate Risk and Sustainable Finance undertaken in January 2022.
- The Sustainable Finance Group (SFG) carried out a survey in January 2022 to assess the status of climate risk and sustainable finance in leading scheduled commercial banks.
- The survey covered 12 public sector banks, 16 private sector banks and 6 foreign banks in India.
- It provides useful insights, and the feedback from this exercise will help in shaping the regulatory and supervisory approach of the RBI to climate risk and sustainable finance.
- In a bulletin issued in March 2022, the RBI analysed the impact of the green energy transition on fossil fuel dependent industries.
- The recently released climate risk discussion paper by the Reserve Bank of India (RBI), to encourage the country’s financial sector to prioritize green-transition financing and ensure long term systemic stability by addressing the growing threat of climate challenges, is most welcome.
Network for Greening the Financial System
- It is a group of central banks and supervisors willing to share best practices and contribute to the development of environment and climate risk management in the financial sector.
- It was created at the Paris One Planet Summit in December 2017 and its secretariat is hosted by the Banque de France.
- It also seeks to mobilise mainstream finance to support the transition towards a sustainable economy.