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


Gaurav Tyagi

29 reads

Gaurav Tyagi

29 reads

While the RBI’s recent draft disclosure framework for climate-related financial risks is a laudable step towards protecting India’s finance ecosystem from climate-related risks, there are many hurdles to its eventual implementation.

April 02, 2024


Key Takeaways

  • On Feb 28, 2024, the RBI introduced its draft disclosure framework for climate-related financial risks
  • The framework applies to a broad spectrum of financial entities regulated by RBI, including scheduled commercial banks, payments banks, regional rural banks, tier-IV UCBs, and top-tier NBFCs
  • While the draft framework is a crucial step towards integrating climate risks into the assessment of financial stability, challenges to its implementation remain
  • The vagueness of processes to be implemented, the lack of India-specific data, and the dearth of sustainability and assurance professionals within the country could impede its implementation

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.

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