By: Monu Kumar
Addressing a policy seminar on Climate Change Risks and Finance, RBI Governor Sanjay Malhotra stated - India has taken the lead in financing renewable energy projects by including them under priority sector lending to accelerate the country’s transition to a low-carbon economy in its fight against climate change.
Malhotra said - Central banks in advanced economies have traditionally followed an asset-neutral approach. However, central banks in emerging markets and developing economies have adopted directed lending policies to channel credit to certain sectors, considering their specific national circumstances and developmental objectives.
He highlighted that India’s priority sector lending guidelines facilitate credit flow to renewable energy projects.
Malhotra added, “We have included financing for small renewable energy projects—such as solar, biomass-based, windmills, micro-hydel plants, and non-conventional energy-based public utilities like street lighting systems and remote village electrification - under priority sector lending."
The RBI Governor pointed out that while the role of central banks in managing financial risks posed by climate change is increasingly recognized, their involvement in facilitating the financing of green and sustainable transitions remains a subject of debate, with multiple perspectives on its scope.
Malhotra emphasized that the Reserve Bank is committed to addressing and mitigating climate change risks to the financial system. In this regard, its focus has been on acting as a facilitator by supporting capacity building and fostering a conducive regulatory framework for promoting green and sustainable finance.
Malhotra also highlighted that several jurisdictions have started assessing and disclosing climate-related risks. International organizations, such as the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards (IFRS) Foundation, have introduced climate-related disclosure standards.
Additionally, the Basel Committee on Banking Supervision (BCBS) has released a consultative document on climate-related financial risk disclosures, aiming to integrate climate risk considerations into the Pillar III disclosure requirements of the Basel framework.
Malhotra concluded - The Reserve Bank has already issued draft guidelines on the Disclosure Framework for Climate-Related Financial Risks in February 2024 for public consultation. We have received valuable feedback and are in the process of finalizing the guidelines. Additionally, a guidance note on Climate Scenario Analysis and Stress Testing is being developed for regulated entities.