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Trending: Call for Papers Volume 5 | Issue 3: International Journal of Advanced Legal Research [ISSN: 2582-7340]

CLIMATE RISK MANAGEMENT: THE CORNERSTONE FOR ACCELERATING GREEN FINANCING IN INDIAN BANKING SECTOR – Sayali Telang

ABSTRACT

Climate risks encompass probable risks arising from climate change or mitigation efforts, impacting economic and financial sectors through physical and transition risks.[1]The research paper aims to comprehensively explore the diverse range of climate risks, delving into their potential implications for various facets of banking operations.This includes an examination of the specific challenges and opportunities posed by physical risks, such as extreme weather events, as well as transition risks associated with the shift to a low-carbon economy. Furthermore, the researcher will analyse the imperative for Indian banks to address climate risk, investigating the current state of climate risk management practices within the sector. By analysing the evolving regulatory landscape, the researcher seeks to understand how regulatory frameworks are being shaped to address climate-related financial risks. The research paper will also assess the practical challenges and opportunities inherent in climate risk disclosures, exploring the potential benefits and obstacles associated with transparent communication of climate-related information to stakeholders. The researcher will examine how the integration of climate risk management into banking operations will provide the necessary framework and impetus for banks to develop and promote green financing solutions, ultimately driving the transition towards a more sustainable financial system.

Keywords: Climate Risks, Green Finance, Sustainable Development, Risk Management, Green Economy

  1. INTRODUCTION

Climate change is rapidly advancing from just an environmental concern to a serious financial threat. A survey by EY Global reveals that 49% of bank chief risk officers consider climate change as a critical financial risk requiring urgent attention.[2] According to The Global Risks Report 2022[3] by the World Economic Forum, societal and environmental risks are the topmost threats the world will encounter in the next five years. Over the next decade, environmental risks, including “climate action failure,” “extreme weather,” and “biodiversity loss,” are ranked as the top three severe risks. The Reserve Bank of India’s Report on Currency and Finance (RCF) for 2022-23[4], themed “Towards a Greener Cleaner India,” emphasizes climate change as a central theme and underscores the role of fiscal policy in fostering a green transition. The report identifies the adverse impacts of climate change on global warming, ecological destruction, human habitation loss, and financial stability.

NASA’s Goddard Institute for Space Studies has conducted ongoing temperature analyses, revealing that the Earth’s average global temperature has increased by at least 1.1 degrees Celsius since 1880[5]. This rise in temperature is driven by several factors, including the burning of fossil fuels and deforestation, which contribute to the accumulation of greenhouse gases in the atmosphere, leading to global warming. Efforts to mitigate climate change and its impacts focus on reducing greenhouse gas emissions by transitioning to a low-carbon economy.

Chapter I highlights climate-related financial risks, including physical risks and transition risks. Chapter II covers the regulatory frameworks in the EU and the UK. Chapter III explores case studies of ICICI Bank and the State Bank of India. Finally, Chapter IV emphasizes the challenges faced by Indian banks and provides recommendations to overcome these challenges.

[1] Reserve Bank of India, Department of Regulation, ‘Discussion Paper on Climate Risk and Sustainable Finance’ (27 July 2023)

[2]Jan Bellens, ‘How resiliency in risk management is the new top priority for banks’ (EY,  22 June 2021) [3]The World Economic Forum, ‘Global Risks Report’ (17th ed.,11 January 2022) [4]Reserve Bank of India, ‘Report on Currency and Finance 2022-23’ (3 May 2023) [5]NASA Earth Observatory, ’World of Change: Global Temperatures’ (3 June 2010)