As financial institutions scramble to comply with RBI’s ESG mandates, is the reporting ecosystem ready?

On February 28, 2024, the Reserve Bank of India (RBI) published its Draft Disclosure Framework on Climate-related Financial Risks. The framework applies to all the lenders and regulated entities (REs) that fall under the central bank’s ambit. The new framework is a significant move by the apex bank towards its overall policy-setting for measuring and limiting climate risks by Indian businesses after it was inducted as a member of the Network for Greening the Financial System (NGFS) in April 2021.

The regulated REs under this framework include all scheduled commercial banks (except local area banks), payments banks, and regional rural banks; tier-IV primary (urban) co-operative banks (UCBs), apart from top and upper-layer non-banking financial companies (NBFCs).

The framework prescribes disclosure for REs across four thematic areas— governance, strategy, risk management, and metrics and targets.

In its release, RBI highlighted how climate change will significantly affect financial entities and underscored the increasing need for solid risk management strategies to de-risk the financial stability of these organisations. As per the central bank, this new framework will enable a unified and comparable disclosure framework for lenders to prevent asset mispricing and capital misallocation by addressing climate-related financial risks.