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JC - Legal Updates - RBI discussion paper on Climate Risk and Sustainable Finance

Legal Updates

29 Jul 2022

RBI discussion paper on Climate Risk and Sustainable Finance

With a view to ascertain the risks and opportunities that may arise from climate change and environmental degradation in the financial market, the Reserve Bank of India (“RBI”)haspublished a discussion paper on climate risk and sustainable finance dated 27th July 2022 (“Discussion Paper”). Comments on the Discussion Paper are invited from regulated entities (“REs”) and other stakeholders by September 30, 2022.

RBI intends to prepare a strategy based on global best practices on mitigating the adverse impacts of climate change, learnings from participation in standard-setting bodies and other international fora. The broad thrust of the strategy is presented under the following heads:

1)    Overview of climate related risk and its unique characteristics as applicable to REs – This elaborates potential risks that may arise from climate change or from efforts to mitigate climate, detailing physical risks and transition risks as the channels which impact financial sector. The section discusses distinctive characteristics requiring focused attention which has to be managed differently from other conventional financial risks. Also understanding the interaction between climate-related and environmental risks and business activities and identifying various risk through prudential risk categories such as credit risk, market risk, liquidity risk, operational risk.

2)    Broad guidance for all REs to have:

(a)   appropriate governance;

(b)   strategy to address climate change risks;

(c)   risk management structure to effectively manage them from a micro-prudential perspective;

(d)   policies and procedures;

(e)   risk identification and assessment;

(f)    risk monitoring;

(g)   risk management and mitigation; and

(h)   risk reporting.

3)    Exploring how forward-looking tools like stress testing and climate scenario analysis can be used to identify and assess vulnerabilities in REs.

4)    Climate risk related financial disclosure and reporting for REs.

5)    Capacity Building.

6)    Voluntary Initiatives.

The Discussion Paper starts with an overview of climate related risk, followed by suggestions regarding the strategies outlined above. The objective of outlining these measures is to evoke discussion and solicit feedback from REs / stakeholders on the proposals contained in the Discussion Paper.



For any further information, please contact Mr. Vedanarayanan Lakshmanan (ved.lakshmanan@jclex.com), Mr. Ankit Sinha (ankit.sinha@jclex.com), Mr. Saurabh Sharma (saurabh.sharma@jclex.com), Ms. Rupul Jhanjee (rupul.jhanjee@jclex.com) or Ms. Teza Jose (teza.jose@jclex.com).