30/07/2022 - Economy | Mainstorming

IAS Parliament 2 years

KEY POINTS

· RBI’s 2021 decision to join as a member of Network for Greening the Financial System (NGFS) a coalition that brings together central banks and supervisors working on climate and green finance issues from across the globe.

· According to the 11th Annual EY/IIF bank risk management survey released in 2021, over 91 per cent of the chief risk officers (CRO) and 96 per cent of the board members viewed climate change as the top emerging risk in the next five years.

· RBI titled ‘Green Transition Risks to Indian Banks’ there is a clear mention of the transition risk due to the cost of adjustment that falls in the production processes of industries that are directly or indirectly exposed to excessive use of fossil fuel.

· For instance, De Nederlandsche Bank (DNB) established a Climate Risk Working Group in 2016 and People’s Bank of China (PBC) standardised green disclosures and green credit ratings since 2018.

· However, given the complexity in climate risk modelling, the biggest challenge for a bank would be to measure the impact of climate risk while undertaking lending and investment decisions and further integrating that risk in the existing risk and valuation frameworks.

· According to a recent Bloomberg survey for European banks, most banks reported that they could only confine themselves to a qualitative assessment of climate risks during the loan approval processes, which could at best be considered as subjective.