Climate Change Risks

Highlights of the keynote address by Sanjay Malhotra, Governor, RBI, at the Policy Seminar on Climate Change Risks and Finance:

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Climate change poses 2 key risks to the financial system: (1) facilitative risks, which involve capacity building, ecosystem development, and financing green transitions, and (2) prudential risks, which focus on managing financial risks caused by climate change. Central Banks play a dual role in managing these risks - while their role in risk mitigation is well accepted, their involvement in financing green transitions remains debated. Central Banks in advanced economies typically follow an asset-neutral approach, whereas those in emerging markets and developing economies employ directed lending policies, such as India's priority sector lending to renewable energy.

Climate change impacts all major financial risks - credit, market, and operational - through physical risks such as natural disasters) and