Context:
The Reserve Bank of India (RBI) is in the final stages of framing guidelines that will mandate banks and financial institutions to disclose climate-related risks in their lending portfolios. This move aligns with global climate finance norms, even as several major global banks roll back similar commitments.
Key Highlights:
Scope of RBI’s Climate Risk Framework
- Mandatory Disclosure Timeline:
- Voluntary climate risk disclosures: From FY 2026–27
- Mandatory compliance: From FY 2027–28
- Disclosures Will Include:
- Climate-related risks in loan portfolios
- Mitigation strategies and decarbonisation targets
- Gross emissions data of borrowers, segmented by asset classes and industries
- Stress testing to assess impact of physical risks (like floods, heatwaves) and transition risks (policy shifts, tech changes)
Draft Framework and Progress
- Draft climate disclosure norms were released in February 2024 for public feedback.
- RBI shared a 52-page draft guidance note with large banks outlining:
- Methodologies for assessing physical and transition risks
- Stress-testing borrowers’ loan repayment capacity under climate-related scenarios
Preparation by Banks
- Major banks have started:
- Hiring climate risk consultants
- Collecting granular climate-related financial data
- Developing internal strategies to comply with RBI’s evolving framework
Significance of the Move
- India becomes part of a growing list of countries (e.g., UK, Japan) requiring climate finance transparency from financial institutions.
- Supports India’s Net Zero by 2070 goal and its upcoming national emissions-reduction target to be announced at COP30 in Brazil (Nov 2025).
- Enhances systemic resilience to climate-induced financial shocks, especially in a country vulnerable to frequent extreme weather events.
