RBI stresses on need to mainstream green finance

There is a need to mainstream green finance and devise ways for incorporating environment impact into commercial lending decisions, RBI Deputy Governor M Rajeshwar Rao has said.

Addressing climate risk in the financial sector should be the joint responsibility of stakeholders as it would affect the resilience of the financial system in the long run, he said.

Rao made these comments while speaking at the CAFRAL Virtual Conference on Green and Sustainable Finance, recently.

"As the risks and opportunities and financial impact arising from climate change vary across jurisdictions, this poses unique considerations for emerging economies like India.

"The challenge before us is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development," Rao said.

He noted that the global understanding of systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing.

"The private and the public sector need to build on our early progress, both by recognising what we do know and urgently filling in the gaps around what we do not," Rao said.

He further said the impact of climate risk transcends across the national borders and continents.

"Let us be aware that even the countries which are not major contributors will also be equally impacted by these risks. We all are in it together," he said.

Climate-related financial risk refers to the risk assessment based on analysis of the likelihoods, consequences and responses to the impact of climate change.

Thus, climate-related financial risks may arise not just from climate change but also from efforts to mitigate these changes, Rao said.

A report of the Ministry of Earth Sciences, Government of India released last year concluded that since the middle of the 20th century, India has witnessed a rise in average temperature, a decrease in monsoon precipitation, a rise in extreme temperature, droughts, and sea levels, as well as increase in the intensity and frequency of severe cyclones.

Photograph: Francis Mascarenhas/Reuters