Embracing Climate Disclosure Governance India's Banking Sector's Resilient Step

With the introduction of the Disclosure Framework on Climate-related Financial Risks 2024)’ by RBI, it is quite apparent that the banking sector is continuously striving towards sustainability and climate sensitization. The new framework evolves the narrative, acknowledging the inevitability of climate change affecting these entities and, consequently, the broader financial stability. The framework not only acts as a means to inform the various stakeholders about climate-related issues but also to develop a narrative of financial resilience in the face of unprecedented challenges related to climate risks. Naman Mishra and Dr Megha Jain say that the framework is built upon four main pillars—Governance, Strategy, Risk Management, and Metrics Targets. Keep reading to know more...

- Naman Mishra

The foreboding challenge of climate change has been a threat to the whole global community. The role of the banking sector remains pivotal for developing nations such as India. With the introduction of the 'Disclosure Framework on Climate-related Financial Risks (2024)' by RBI, it is quite apparent that the sector is continuously striving towards sustainability and climate sensitization.

Looking at the concept of financial stability, the role played by risk assessment has been an irreplaceable one. This is visible in the introduction of the discussion paper by RBI in 2021 which highlights the relationship between the various sources of climate risk and their impact on regulated entities (RES).

The new framework evolves the narrative, acknowledging the inevitability of climate change affecting these entities and, consequently, the broader financial stability. Mitigating the effects of climate change requires just more than acknowledgement; it requires prompt actions and as such these REs must not only adapt to the changing challenges but also cater to the financial instability in a sustainable economy. It calls for the implementation of robust climate-related financial risk management policies. This framework is not only a regulatory requirement but it also fulfils the duty of the bank as a custodian of the financial system to safeguard it against climate-induced shocks.