rbi: RBI proposes norms for disclosure of climate-related financial risks for lenders

Kolkata: The Reserve Bank of India has told banks and other lenders to disclose more information about their climate-related financial risks so that stakeholders — from regulators to customers — can understand and assess the risk early.

Climate-related disclosures by regulated entities is an important source of information for different stakeholders — customers, depositors, investors and regulators — to understand relevant risks faced and approach adopted to address such issues.

“It will foster an early assessment of climate-related financial risks and opportunities and also facilitate market discipline,” RBI said in a draft disclosure framework on climate-related financial risks, 2024..

“Given the growing importance of climate-related financial risks, there is a need for regulated entities to disclose more structured information about their climate-related financial risks,” the central bank said.

This is a part of risk management policies and processes adopted by regulated entities to effectively counter the impact of climate-related financial risks.

The lenders already disclose information on material risks. Now, RBI has suggested lenders to disclose the role of management in the governance processes, controls and procedures and whether it is delegated to a specific management-level position.The disclosure also should include climate resilience of strategy adopted including the business model to climate-related changes, developments and uncertainties.”The significant areas of uncertainty considered in the assessment of climate resilience and the RE’s capacity to adjust or adapt its strategy and business model to climate change over the short, medium and long term,” RBI said. This shall include the availability of and flexibility in the existing financial resources to respond to the effects identified in the climate scenario analysis for addressing climate-related financial risks as also to take advantage of climate-related opportunities, and the effect of the current and planned investments in climate-related mitigation, adaptation and opportunities for climate resilience.

The lenders shall disclose the information on a standalone basis and not consolidated basis while foreign banks shall make disclosures specific to their operations in India, RBI said.

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