RBI to issue a consultation paper on climate change risks

The Reserve Bank will issue a consultation paper on climate change and climate change related risks order in the coming weeks to equip banks and financial institutions to effectively deal with the issues arising out of climate change.

“Climate-related risks will be a focus area in times to come” said RBI governor Shaktikanta Das on Friday in his address at the Bank of Baroda’s annual banking conference in Mumbai.

“In this area, whatever we want to do we would like to do in a collaborative manner,” Das said. “With this objective we are coming out with a discussion paper on climate change and climate change related risks. We are expecting suggestions, ideas from all stakeholders. After considering the suggestions we will go forward.”

Climate related risks will be a focus area in times to come. Such risks will impact the business models of banks. Panelists at the seminar voiced their concerns on these issues during a session on ESG finance and tackling climate change. “The increased requirements of funding businesses and industry for tackling climate change would be greatly influenced by the global move on climate related risk management” Das said.

Various stakeholders already consider environmental, social and governance (ESG) as an important aspect while making investment decisions. Rating agencies have developed specialised models for rating such lending proposals.

Banks are also increasingly aligning their businesses, including assessment of financing assets, with the global climate sustainability agenda. The need for banks would be to develop appropriate business strategies and strengthen the governance framework to gauge the associated risks. “In line with international best practices, a forward-looking, comprehensive and strategic approach would be required to address climate risks” Das said.

The global understanding of systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing. ” The private and the public sector need to build on our early progress, both by recognising what we do know and urgently filling in the gaps around what we do not.” said M. Rajeshwar Rao, RBI deputy Governor in an address in September’21.