In a significant move to address climate-related financial risks, the Reserve Bank of India (RBI) has released a draft standard disclosure framework for regulated entities (REs).
In a recent circular, the Reserve Bank of India (RBI) highlighted that climate-related risks have emerged as a significant concern, poised to profoundly affect regulated entities (REs) and the overall stability of the financial sector. The escalating threat of climate change, characterized by physical destruction, shifting market perceptions, and a move towards greener products and services, undeniably influences REs. The REs also play an important role in financing the transition towards an environmentally sustainable economy. It is therefore imperative for the REs to implement a robust climate-related financial risk management policies and processes to effectively counter the impact of climate-related financial risks.
There is a need for a better, consistent and comparable disclosure framework for REs, as inadequate information about climate-related financial risks can lead to mispricing of assets and misallocation of capital by them. Accordingly, it has been decided to put in place a standard disclosure framework for REs on climate-related financial risks.
The framework mandates a set of guidelines applicable to a wide range of financial institutions including all scheduled commercial banks (excluding local area banks, payments banks and regional rural banks), Tier-IV urban co-operative banks, key all-India financial institutions, and major non-banking financial companies (NBFCs). These entities are required to report in accordance with the guidelines on an individual basis, while foreign banks operating in India are advised to make India-specific disclosures.
The RBI has invited comments/feedback on the draft framework by April 30.
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