The latest Reserve Bank of India (RBI) survey on ‘Climate Risk and Sustainable Finance’ points to the long road that commercial banks in India need to traverse in order to make their lending portfolio instrumental in the global response to the climate crisis.
The survey points out that hardly any banks incorporate performance indicators related to environment, social and governance (ESG) criteria in the evaluation of their top management.
Most banks don’t have a separate vertical in their administrative structure to consider ESG-related initiatives and sustainable finance, nor were they able to present a clear strategy towards amplification of their sustainable finance portfolio or responding to climate risk.
The survey, conducted by the Sustainable Finance Group (SFG) of the Department of Regulation at the RBI, had the participation of 16 private commercial banks, 12 public sector banks and six foreign banks. Based on the survey, the SFG recommends capacity building and incorporation of climate-risk assessment as part of the banks’ governance framework, and advocates larger shares of the lending portfolio towards green financing.
This survey assumes added significance as it comes at a time when the Indian government has made ambitious commitments at the global level, typified by Prime Minister Narendra Modi’s panchmrit agenda announced at the COP26 climate talks in Glasgow last year. Specifically, the country has pledged to reduce emissions by 45% by 2030 and achieve net-zero by 2070.
Climate finance is at the heart of all these targets, which require transitioning to renewable energy and investments in alternative infrastructure, which in turn makes financial institutions like banks central to this endeavour.
The RBI’s initiative to take stock of ESG measures adopted by banks is welcome and allows us an opportunity to understand a rapidly evolving field at the intersection of climate change, finance and policy.
RBI’s discussion paper based on the survey rightly emphasises the “increasing need for the financial system to move towards green financing, keeping in mind the social and developmental objectives of the country”.
Amitanshu Verma from Center for Financial Accountability observed that while the recognition does not lead to the prescription of any mandatory policy measures, it is significant in the Indian scenario, where climate finance is nearly absent from the national discourse.
This is also doubly ironic – on the one hand because a vast section of India’s population directly bears the health and economic consequences of fluctuating temperatures, eroding coasts, melting glaciers and toxic air, but on the other, movements in India have played a pioneering role at the global stage in establishing the social and ecological accountability of banks for the ‘development’ projects they fund, he added.