RBI To Make Climate Risk Disclosures Mandatory For Banks

(Bloomberg) -- The Indian central bank will require lenders to disclose climate finance risks starting in April 2025 and to meet certain climate targets beginning in 2027.   

“Inadequate information about climate-related financial risks can lead to mispricing of assets and misallocation of capital by them,” the Reserve Bank of India said in the proposed requirements for a “better, consistent and comparable disclosure framework” for banks and large non-bank financial companies. 

The central bank in 2022 had suggested disclosures could be voluntary, but the latest draft makes them mandatory. India was the last among the world's biggest economies to set a target for net zero emissions, which it has said it will achieve by 2070. 

The RBI listed several categories of disclosures, including the party responsible for climate-related issues, processes in place to assess and manage risks, and how such risks could affect the performance of the financial institution. Lenders will have to disclose the impacts of various climate scenarios over the short, medium and long term. 

The mandatory climate targets from financial year 2027-28 will have to be fixed by the banks and will include “information about the performance against each climate-related target and an analysis of trends or changes in the regulated entity's performance.”

The required disclosures “will support shifting of credit toward green financing to meet India's climate finance gaps,” said Dhruba Purkayastha, India director for Climate Policy Initiative, which called on the banking system to also measure its financed emissions.

The banks are also free to disclose information beyond what's required, the RBI said in its draft. 

--With assistance from Lou Del Bello and Saikat Das.

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