Indian banks grapple with climate crisis amid ambitious climate goals: Report - WION
Indian banks grapple with climate crisis amid ambitious climate goals: Report - Business & Economy News
Indian banks grapple with climate crisis amid ambitious climate goals: Report
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The report, which assessed 34 top banks on various parameters related to climate risk management, found that most of them lack policies addressing fossil fuel use, emissions limits, and climate scenario analysis.
As India commits its ambitious climate goals, a report by Climate Risk Horizons (CRH) has revealed that the country's banks are alarmingly ill-equipped to address climate change risks. While India pledged to achieve net-zero emissions by 2070 at the Glasgow Climate Meet, its banking sector has been slow to incorporate climate risks into their policies.
The report, which assessed 34 top banks on various parameters related to climate risk management, found that most of them lack policies addressing fossil fuel use, emissions limits, and climate scenario analysis. CRH's survey highlighted that public sector banks are particularly vulnerable to large capital shortfalls due to adverse climate shocks.
CRH’s report noted, "Extreme weather events in 2022 claimed 3,026 lives and affected crop areas. Preparedness for climate risks means that they have to be measured and managed. And this is exactly where Indian banks are lagging."
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India faced another year of climate-related disasters in 2023, with flooding and landslides in Uttarakhand and Himachal Pradesh resulting in significant loss of life and property. The financial toll is estimated to be substantial, highlighting the urgent need for banks to address climate risks.
The report also emphasized the importance of joining international climate initiative associations, such as the Partnership for Carbon Accounting Financials (PCAF) and the Task Force on Climate-Related Financial Disclosures (TCFD). These associations provide expertise and guidance on climate accounting and reporting.
GHG accounting, a critical aspect of addressing climate risks, involves measuring greenhouse gas emissions, including carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O). It's crucial for financial institutions to measure and report their Scope 1 (direct emissions) and Scope 2 (indirect emissions) emissions. However, Scope 3 emissions, which encompass emissions from a company's value chain, remain challenging to measure but are vital for financial institutions to track.
According to CRH's data, only 10 out of the 34 banks have begun disclosing Scope 1 and 2 emissions, with 8 of them also starting to disclose some Scope 3 emissions. Notably, none of the banks have calculated the impact of different climate scenarios on their portfolios. Furthermore, only 10 banks have disclosed the amount of green finance disbursed, and none have set comprehensive net-zero targets covering all three scope emissions.
CRH has urged Indian banks to take concrete steps towards aligning with India's climate goals. This includes increased lending for the country's energy transition targets, transparent disclosure of climate-related figures, and ensuring that fossil fuel-dependent industries they finance develop science-based transition plans. As the world grapples with the consequences of climate change, India's banking sector faces mounting pressure to play a pivotal role in combating climate risks.
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Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”