India’s climate risk disclosure plan for banks a ‘positive step’

March 15, 2024|Written by |Reserve Bank of India

Experts have welcomed plans by the Reserve Bank of India (RBI) to require banks to disclose their management of climate risks, hailing it as a strong start in aligning the world’s most populous nation with international initiatives.

Under the draft framework, entities regulated by the RBI will have to disclose the processes, governance structures and strategies they have in place to identify, mitigate and monitor risks related to climate change.

The rules will apply to commercial banks, financial institutions and large financial companies from the 2025-2026 tax year onwards, with large cooperative banks following a year later. The disclosures will need to be published as part of banks’ financial results and made available online.

The draft includes requirements for how banks should detail their use of scenario analysis, as well as their setting of internal targets and progress towards meeting any legal targets.

The disclosures should include scope 1, 2 and 3 greenhouse gas emissions – meaning those directly linked to the bank’s operations, those linked to its energy use, and those for which it is indirectly responsible up and down its value chain.

The disclosure requirements for metrics and targets will come into force a year later than those relating to banks’ governance, strategy and risk management.

Suranjali Tandon, a visiting senior fellow at the London School of Economics’ Grantham Institute and a specialist on sustainable finance at India’s National Institute of Public Finance and Policy, described the draft framework as “a positive step forward”.

“There have been demands for uniform disclosures and it is similar to the approach under the Task Force on Climate-Related Financial Disclosures,” she told Green Central Banking.

A 2022 report from ODI, auctusESG and the Climate Bonds Initiative (CBI) indicated that the RBI’s green initiatives had so far focused on encouraging opportunities in sustainable finance in one of the world’s largest developing economies, rather than managing environmental risks.

Tandon warned that “significant capacity building and sensitisation of banks” was needed before the new rules come into force, pointing to an RBI survey in 2022 that suggested they were far from ready.

Neha Kumar, CBI’s head of south Asia initiatives, praised the draft as a strong attempt to align RBI regulation with international developments such as those emanating from the International Sustainability Standards Board, while adapting them to “Indian particularities”.

“[The] RBI has also acknowledged that the accuracy and consistency of climate-related data is still evolving and the disclosure requirements with a clear glide path will accelerate the availability of such information,” Kumar said.

She added: “While this is a great and awaited start, regulated entities typically would need more guidance on things like the scenario analysis.”

The RBI is running a consultation on the draft framework until 30 April.

The framework specifies a wide range of physical risks that should be taken into account, from extreme weather events like floods and heatwaves to longer-term shifts such as ocean acidification and rising sea levels.

More than 80 percent of India’s 1.4 billion-strong population live in areas vulnerable to climate-induced disasters, according to the World Bank. The country pledged in 2021 to reach net zero by 2070.

This page was last updated March 15, 2024

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