RBI releases discussion paper to combat climate-change risks

These entities may make such disclosures annually, to begin with and may use their sustainability reports, annual reports, website, or a combination of them to facilitate public access, the paper said.

In view of the evolving developments in climate-related disclosures, a “comply-or-explain” approach may be adopted by regulated entities, considering the significance of their operations, including the nature and size of their businesses, and, the materiality of climate-related risks they are exposed to, according to the discussion paper.

Why now?

The RBI, while announcing the monetary policy decision in April, had acknowledged that climate change may result in “physical and transition risks” that could have implications for the safety and soundness of individual regulated entities as well as financial stability.

Thus, such entities should develop and implement a sound process for understanding and assessing the potential impact of climate-related financial risks in their business strategy and operations, the RBI had said.

Speaking at a banking event, RBI governor Shaktikanta Das said that climate-related risks would be a focus area in times to come and that the central bank would want to focus on it in a collaborative manner.

Assessing climate risks

The discussion paper proposed that regulated entities should also start chalking out a plan to obtain relevant information such as collecting emission data from their customers.

The Indian Banks’ Association (IBA) may set up a working group on capacity building in the area of climate risk and sustainable finance to assess the training requirements for bankers and ways to meet them through the available training establishments, certification programmes and online courses, among others.

Tie-ups with multilateral institutions like the IFC, etc., which have vast experience in this area, may also be considered.

Regulated entities could also set a voluntary target for green finance, the discussion paper said. To green the banking processes by making them more environment-friendly, these entities could also consider converting their branches to green branches by eliminating the use of paper in their operations and introducing e-receipts at their ATMs, the discussion paper said.

'Good practices'

The discussion paper stated that it is a "good practice" for regulated entities to have a committee or a sub-committee at the board level comprising experts from sustainability and risk domain.

It could also mandate processes to identify and manage climate-related and environmental risks and opportunities along with timely monitoring and regular updation of the internal risk reports, among others.

Regulated entities can take steps for capacity building and upskilling of the board and senior management on climate-related issues through internal workshops and training, or external collaboration, the paper said. They may also integrate climate-risk assessment as part of their due diligence process.

The RBI has invited comments on this discussion paper from regulated entities and other stakeholders by September 30.