RBI's mandate looks unlikely to include climate change

Given India's lengthy legislative process, the central bank is moving slowly but cautiously

- RAJRISHI SINGHAL

Some central banks have a single mandate and some have dual mandates. The Reserve Bank of India (RBI) has an explicit two-fold legal remit, price stability and growth patronage, although the RBI Act's preamble also includes regulating the issuance of bank notes, the management of reserves to foster monetary stability and operation of the country's currency and credit system "to its advantage." There is now a growing clamor around the world that central banks, including RBI, should include climate change as part of their legal mandate. This merits some exploration.

The growing demand for including sustainability objectives in central bank mandates stems from the increasingly self-evident and material effects of climate change, especially through the emergence of a three-cornered risk matrix for the financial system: physical risks to assets through extreme weather events, transition risks for high-carbon projects slow in reducing their carbon footprint and liability risks arising from weather-related losses or legal actions against emitters. All these risks have a way of affecting financial institutions and eventually financial stability. Central banks globally are being forced to deploy monetary policy as well as micro- and macro-prudential instruments to manage these risks.