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Informist, Thursday, Jul 25, 2024

 

--RBI Rao: Early work on curbing climate risk to aid long-term growth

--RBI Rao: Climate action invest to pay-off well in medium-, long-term

--RBI Rao: Adaptation a missing link in current climate strategies

--RBI Rao: Need to channelise more climate fin to lower-income econs

--RBI Rao: Plan to release guidance notes on climate-related fincl risk
--RBI Rao: Growth, climate-protection objectives can converge optimally
--RBI Rao: Regulators must set up right climate information infra

 

NEW DELHI – The cost of transitioning to a more sustainable economy would be lower with an early start and spread out over a longer time horizon, Reserve Bank of India Deputy Governor M. Rajeshwar Rao said last week. Rao said he believes there are clear linkages of climate events on growth and inflation.

 

"I believe that early work on mitigating the climate risk would support long-term growth," Rao said in a speech uploaded to the RBI website today. "The investments in climate action would pay off well in the medium and long term."

 

The RBI has already released a draft disclosure framework for climate-related financial risks for Indian companies. It also plans to release guidance notes on scenario analysis, stress testing and effective management of climate-related financial risks, Rao said today. Financial institutions and non-financial firms in emerging markets and developing economies have an important role to play during the transition to a lower-carbon economy, the deputy governor said.

 

"While the obvious risks of climate change relate to the physical world, such risks have the potential to swiftly transcend from physical to financial, bringing into focus the role of the financial sector," Rao said. "Transition plans are essential for banks and financial institutions to mobilise capital and manage financial risks that may arise from climate-related financial risks."

 

Transition plans for these must be strategic and top-driven, with macroeconomic benefits listed at the geographical, industry and entity levels. One of the biggest factors holding back global decarbonisation is the initial cost of investment, particularly for lower-income economies that are already resource strained, Rao said. The Economic Survey for 2023-24, released on Monday, said that it expected a crisis due to climate change and global warming.

 

"There is a need for more channelising of climate finance to EMDEs (emerging market and developing economies) and firm and abiding commitments on climate funds from advanced economies to help EMDEs in the transition process is very important," Rao said.

 

The RBI deputy governor also called for collaboration with the private sector to ease the cost of transitioning the economy, particularly for climate credit. To this end, regulators must also put in the right climate information architecture to attract private capital.

 

The possible policy direction points to strengthening regulatory and supervisory frameworks that could include

disclosure requirements, risk management and periodical stress testing could be strengthened, he said. To address 'greenwashing' concerns, third-party verification of green credentials and impact assessment of projects could also be tightened, he said.

 

"The point I wish to make is that it is possible to converge the objectives of growth and climate-protection in an optimal way. Once we are able to put in place enabling frameworks, economy would be able to create a pipeline of the viable projects as well as evolve a set of new financial instruments like adaptation finance, blended finance as an innovative climate financing tool," Rao said.

 

All stakeholders, from governments to the public, must incorporate the missing link of adaptation in their climate strategies to reduce the impact of current climate events, Rao said.

 

The RBI deputy governor also said India's financial system looked stronger than in the past with both banks and non-banking financial companies improving on key metrics.

 

Notwithstanding the strong performance of the financial system, the regulator needs to remain vigilant to the risks on the horizon, including increased cyber risks and strong credit growth in some segments of unsecured retail loans. End

 

Reported by Aaryan Khanna

Edited by Saji George Titus

 

 

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