In a discussion paper on “Climate Risk and Sustainable Finance", RBI on Wednesday said, globally the efforts to address climate change have been growing across jurisdictions and an increasing number of central banks are either contemplating or are in the process of taking action on this aspect as part of their mandates. Further, climate change risk is also ascending the hierarchy of threats to financial stability across advanced and emerging economies alike, and consequently, the need for an appropriate framework to identify, assess and manage climate-related risk has become imperative.
RBI intends to prepare a strategy based on global best practices on mitigating the adverse impacts of climate change, learnings from participation in standard-setting bodies and other international fora, the discussion paper said.
Under the broad thrust of the strategy, RBI's paper said, "Broad guidance for all REs to have (i) appropriate governance (ii) strategy to address climate change risks and (iii) risk management structure to effectively manage them from a micro-prudential perspective," adding, "exploring how forward-looking tools like stress testing and climate scenario analysis can be used to identify and assess vulnerabilities in REs."
Further, RBI said, as a part of their commitment to scale up lending for green finance, the Reserve Bank would seek to encourage REs to set a voluntary funding target to increase green funding with the approval of their Board.
"In other words, they may set an incremental target for green finance over short, medium and longer term towards certain identified sectors. The achievement of these targets may be reviewed annually to assess the positive environmental outcomes," RBI's discussion paper added.
Encouraging paperless financial operations, RBI said in its paper, "In order to green the banking processes by making them more environment-friendly, REs could consider converting their branches to green branches by eliminating the use of paper in their operations, introducing option of e-receipts (i.e., providing the receipt, if required, as a link on the registered mobile number) at their ATMs, etc."
REs may look at ways and means to incentivise adoption of e-receipts, the discussion paper said.
"Likewise, the REs may also like to convert all their data centres to green data centres by switching over to renewable energy for sourcing power for the data centres, etc. and implement guidance provided by established frameworks like the Green Data Centre Rating Systems," RBI's paper said.
RBI had invited comments on the discussion paper from regulated entities and other stakeholders by September 30, 2022.
