Prime Upshots:
- Climate Risk Horizons (CRH) states gross negligence of climate issues from Indian bankers as the latter formulate their business plans sans such considerations,
- To take on climate crisis and to foster green transition, many banks in India are found ill-prepared,
- The report outlines banking institutions should reveal the amount paid for renewable energy sector.
India advances speedily on the path of transition, but is our banking sector all equipped to float along the wave and to deal with the financial aftermath of climate change?
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Scrutinizing the new report, many banks are “unprepared” to manage climate change. However, it is not a hidden claim that our banking sector is expected to play a demanding role in addressing the climate crisis by “managing the risks that climate change poses to their operations and financing the energy transition”.
The report, unfortunately, CCRH (a think tank) calls us “unprepared”, as performance of our banks is not upto the required level.
It singles out 34 big banks in India, big in terms of their market capitalization, which are said to have omitted the climate change aspect in their key strategies. This is despite the fact that “rosiest projections indicate significant economic challenges for the Indian economy.
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Inside the report we find, “there has been little information in the public domain to gauge the way the sector is preparing itself”.
About Indian banks, the report says, “build their capabilities to undertake scenario analyses that test their resilience to climate-related changes, either due to physical risks caused by the climate crisis, or transition risks caused by economic changes in response to the climate crisis”.
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The report further outlines,”other than a few notable exceptions, the bulk of India’s banking sector has not even started to put in place the most rudimentary mechanism to address the climate threat”.
“The fact that even large, media-savvy public and private sector institutions such as SBI (State Bank of India), Union Bank, ICICI Bank, etc, are performing so badly should be extremely worrying for investors and something that the regulators (the Reserve Bank of India and the SEBI) must address”.
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Going by the study, the banks Yes Bank, IndusInd Bank, Axis Bank and HDFC Bank occupy the top positions which include climate issues in their top discussions. But then, we have the public sector bank which falls behind them.
The bottomline is that the banks from the public sector, albeit influential, underperform as compared to private sector ones.
As such, a total of 7 Indian banks formulate policies that “exclude lending/ services to entities credibly involved in deforestation, human rights violations and biodiversity loss, etc” and only two banks have excluded new financing for coal mines and coal power plants”.
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Besides, on a lighter note, the report also found “27 banks have issued green loans/bonds/financing towards climate change mitigation/adaptation”.
Climate Risk Horizons has Mr. Ashish Fernandes as CEO who co-authored the report, revealed,”main point is that the Indian financial system is so far lagging when it comes to adapting to the climate crisis, because of which, there is the risk of significant financial impacts to stakeholders (financial institutions, companies, investors and by extension the economy at large”.
He resumed his media address by saying, “And there is the other side of the coin, which is that the necessary transition to a low carbon economy will be delayed, again with both physical and financial impacts”.
When he was nudged about the (possible) hazards associated with the investment, he clarified, “any new fossil fuel investments going forward, especially coal, and in a short order new oil and gas as well, would pose a risk- but there are also other infrastructure projects that are at risk- example, coastal roads, large dams, developments in floodplains”. Environment news updates in India to enable a sea change.
He stressed, “banks need to have a transition plan for their investment portfolio that takes this reality on board, considering the reality that India has to wean itself off all fossil fuels over the coming 2-3 decades”.
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Interestingly enough, the finding of the report is found to be similar to what the Indian parliament committee released recently which directs GoI (Government of India) to boost renewable sources of energy. It said, “Renewable Finance Obligation for banks and financial institutions” which would emphasize that they put some part of their investment in the field of renewable energy.’
In the CRH report, it is stated that many international banks have adhered to the approach of decarbonization as they assess risks associated with the climate, “by using climate transition scenarios to cover oil and gas, power generation/ utilities, transportation and metals and mining sectors”.
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Instances embedded in the report include,”Examples of this approach are Caixa Bank, Intesa Sanpaolo, Danske Bank, Mitsubishi UFJ Financial Group (MUFG), KBC Group, UBS, Banco Bradesco and ABN AMRO”.
To Phase Out Fossil Fuels, Clear Targets Should Be Set For India:
The CRH report clearly declares our sincere intention for renewable energy as India has set clear targets. There are many measures such as solar panel installation to meet electricity needs for industrial and residential units, electrification of transportation and the use of green hydrogen for industry purposes. Such targets should meet the neutrality goals.
According to the report, “Banking institutions need to disclose the levels of financing for these and other climate mitigation and adaptation sectors”. Environment news updates in India to make you look at things more closely.
It also indicates that our current goal of carbon neutrality by 2070 is achievable if we put our efforts in that direction by drifting towards “easier to transition” sectors such as electricity, transport, industrial power and such should make great progress in this direction. Timely updates for environment news in India, is right through this website.
Experts clearly accentuate in the report that setting deadlines in form of target dates for the fossil fuels reliance to end is essential to “managing longer term financial impacts as the global economy decarbonizes” since in the absence of clear line of action, “raising global capital will increasingly become more difficult (and probably more expensive)”.
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As a matter of factly, when RBI discussed about “Green Transition risks to Indian banks”, clearly declared in March 2022 bulletin, “transition to a net-zero carbon emission target will entail adjustment in the production processes of industries that are directly or indirectly exposed to excessive use of fossil fuel and concomitantly, due to the exposure of Indian banks to these industries, there can be spillover effects on them”. When you look for environment news updates in India, look for the best and very recent.
The bulletin further says, several other industries, however, indirectly use fossil fuels and therefore any transition to green energy can have implications for their income…therefore, the gross non-performing assets (GNPA) ratio of such industries may be sensitive to green energy transition, and their impact on overall banking system need to be monitored closely”.
About the expectations from India’s central bank, Fernandes opines that, “RBI is slowly waking up to the issue”. Envrionment news updates in India that make you think beyond.
He expressed optimism, “It has signalled that it will be communicating with banks on this, but we are yet to see any concrete action or regulations. Obviously, the faster the RBI can move on this, the better”.
The CRH report is critical of RBI for failing to roll out any climate related guidelines which would help assess risks for prominent and scheduled banks and which would be according to the latest 2022 survey. From RBI, this aspect should be discussed over.
In the meantime, Ms Sonali Gokhle also enlightens us with her perspective. She is finance specialist for projects that fall under the renewable energy sector. We collect and present environment news updates in India, when you need it. Updates in environment news in India are shared here.
She maintains,”currently, India’s banking sector is saddled with a legacy of non-performing loans from various sectors, of which the power sector is a large contributor.” Timely news updates about the environment in India.
She revealed to an Indian website popular for environment news updates in India, “The resolution of the fundamental, often interconnected issues in the sector are rightfully the policy priority for the regulators. However, recently there have been steps taken by RBI & SEBI to initiate discourse on the greening of financial systems in the form of consultative papers and research.”
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RBI has also joined the Central Banks and Supervisors Network for Greening the Financial Systems (NGFS) as a Member on April 23,2021, and is understood to be in the process of publishing a consultative discussion paper to assess climate risks for its regulated entities. We expect that in due course of time, appropriate frameworks for climate risk assessment will be developed by regulators in line with India’s financial markets, maturity and future growth plans”.
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In short, banks have to lead to assess climate change. They should honour many projects related to renewable energy for human existence on earth.
