Just a quarter of Indian financial transition plans align with 1.5°C world, report finds

June 12, 2024|Written by

An assessment of the transition plans of 15 Indian financial institutions (FIs) has revealed that barely a quarter of them align with projections that would keep global heating to below 1.5°C.

The report is based on data provided by 11 Indian banks, one insurer and three asset managers that made environmental disclosures via CDP, formerly known as the Carbon Disclosure Project, in 2023.

“These FIs hold INR [Indian rupees] 36,212.26 billion (US$433.6bn) market capitalization in India which is quite sizable,” the report noted.

On the plus side, 94% of the FIs reported having board-level oversight of their climate transition plans, a governance safeguard that may help to ensure companies steer their business in a more sustainable direction.

Meanwhile, just under half – 47% – disclosed having qualitative and quantitative scenario analysis in place to inform their business strategies. The same proportion said they had assessments covering climate-related risks in their banking portfolios, with the rest failing to examine the issue closely.

Only 27% reported having a climate transition plan which aligns with a 1.5°C world, and just one of the FIs set a portfolio emissions reduction target covering their financed emissions – the emissions that can be attributed to the activities funded by their investments.

“This is a vital gap in addressing the ambition and trajectory of financial institutions and their portfolios in the climate transition,” the report said.

Nonetheless, the overall picture for the 15 FIs assessed in the report indicates a “growing awareness of the risks from climate change,” said Suranjali Tandon, a visiting senior fellow at the London School of Economics’ Grantham Institute and a sustainable finance specialist at India’s National Institute of Public Finance and Policy.

“However, the survey may not be representative of the disclosure landscape for the overall financial system,” she told Green Central Banking.

“It is expected that the Reserve Bank of India’s regulatory guidance will nudge a greater number of FIs to adopt such practices in the near future. The main challenge remains with regard to the capacity among financial institutions of various scales to adopt these practices.”

The Indian central bank released a draft framework in March for disclosures by banks of their management of climate risks, which will notably require banks to reveal their transition plans, if they have them.

“This could be a highly enabling aspect of the guidelines as it allows a multi-year approach beyond the usual financing or investment time horizons to facilitate a more comprehensive assessment of climate risks,” Neha Kumar, head of the south Asia programme at the Climate Bonds Initiative, has noted.

According to CDP, the FIs covered by the report had identified more than a trillion rupees (US$12bn) of potential financial losses stemming from climate-related risks. “However, this is likely to be severely underestimated,” it stressed.

In comparison, the FIs’ own estimate of the cost of countering the risk is, at 28bn rupees, less than one thirty-sixth of the estimated financial impact of the risk, representing “a compelling case for transitioning portfolios in alignment with net-zero”, the report said.

This page was last updated June 13, 2024

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