Jubilee Post News & Views
Dr.Seema Javed
India’s banking sector remains ill-prepared to deal with climate risks, according to new analysis by think tank Climate Risk Horizons. The 2024 edition of its banking report assesses the progress of climate-risk preparedness of 35 Indian banks. The analysis ranks banks on ten criteria including a Coal Exclusion Policy, Emissions Disclosure, Climate scenario analysis and Net Zero Targets. Yes bank, IDFC bank, and HDFC bank
stood out as the leading performers.
Despite some progress in Climate Risk Management, the report finds a significant lag in action by banks on critical areas such as having a Coal Policy, disclosing their Financed Emissions (Scope 3, Category 15) and having Net-Zero Targets.
RBL Bank and Federal Bank are the only banks that have a coal exclusion policy and have committed to stop financing coal projects by 2030 and 2033 respectively.
Only three banks disclosed the amount of emissions they directly financed, with most other banks still developing processes for measurement. Of the 35 banks assessed, only six have set net zero targets and 25 banks are yet to disclose any climate action plans.
“Climate change and the frequency of extreme weather events in India are accelerating far faster than banks are advancing their climate risk preparedness.
Many banks still lack board-level oversight of climate/ESG risks, and many do not disclose all their scope emissions or have a target to reduce them. The fact that these fundamental steps in
Climate risk preparedness remains absent as a threat to not just the banking sector but also the Indian economy at large,” said Anusha Das, co-author of the report.
Climate risk management practices have gained traction with 16 out of 35 banks having dedicated ESG risk/climate risk committees or policies at the board-level. The report also reveals a growing awareness of climate risk assessments among Indian banks; 13 banks have initiated climate scenario analyses, and two—Kotak Mahindra Bank and IDFC First Bank—have conducted climate stress tests with detailed disclosures. This is a significant improvement from the previous year when no bank was in the advanced stage of conducting climate scenario analyses.
The report highlights the need for regulatory clarity from the Reserve Bank of India to guide banks on how to identify, assess, and manage climate-related risks. It also recommends the issuance of a formal climate finance taxonomy and government backed guarantees, subsidies, and tax incentives to mitigate lending risks for green projects. The report has also organised the RBI’s draft disclosure framework into an actionable structure that can be used by banks to strengthen their disclosures on climate-related financial risks.
“Coal power is no longer essential for India’s energy demand or energy security and is increasingly outcompeted by renewable energy on economic grounds. While some banks have taken initial steps to limit coal exposure, only firm, measurable commitments to phasing out coal financing can drive the transition to a sustainable, low- carbon economy and accelerate progress toward India’s net zero goals,” said Sagar Asapur, co-author of the report.
“Net Zero targets set the benchmark for climate commitments, demanding absolute emission reductions and leaving offsets as a last resort for unavoidable emissions. Indian banks must move beyond carbon neutrality goals and commit to Net Zero pathways with clear milestones and time lines for meaningful climate action”, he said. ‘Climate Risk Horizons’ work highlights the systemic risks that disruptive climate change poses to investors, lenders and infrastructure investments. Through a data-driven, research-oriented approach that incorporates a holistic understanding of climate policy, energy infrastructure and regulatory processes, CRH provides advice on risk management strategies to minimise stranded, non-performing assets and economic disruption in the face of climate change.
