RBI Set to Finalise Climate Risk Disclosure Norms for Banks

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• RBI shared a 52-page draft guidance note with large banks outlining: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.

BL