Indian banks largely unprepared for climate-related financial risks, warns report

NEW DELHI: With climate change posing increasing risks to financial stability, Indian banks remain largely unprepared to fully integrate climate-related risks into their operations, said a report by Climate Risk Horizons.

The “Unprepared” report by Climate Risk Horizons (CRH) assessed 35 banks largest scheduled commercial banks in India by market capitalisation on the Bombay Stock Exchange (BSE), with a combined market cap of Rs 4,582,292 crore as on March 2024.

Out of these 35 assessed banks, 11 are public sector banks, 18 are from the private sector, and six are small finance banks.

The report says that only a handful have made meaningful progress in areas like emissions disclosure, climate risk management and coal divestment.
As per the report, only seven banks disclose all scope 1, 2 and 3 emissions, leaving major gaps in transparency and accountability.

“This report highlights that the Indian banking sector faces significant challenges in aligning with global climate goals,” the report added.

“Despite some progress in adopting frameworks like Partnership for Carbon Accounting Financials (PCAF) and Sustainable Development Goals (SDGs), the majority of Indian banks lack comprehensive climate strategies, adequate green finance portfolios, and integration of climate risks in their credit and lending decisions,” the report added.

On the positive side, climate scenario analysis and climate risk management is gaining traction, the report said, adding that there is an urgent need for capacity building and clearer regulatory guidelines to support a smooth transition towards sustainable banking practices.

“This report emphasises that the Reserve Bank of India (RBI), government, and industry stakeholders must take decisive action to accelerate the shift towards green finance,” the report added.

Going further, the report added that many Indian banks are discussing sustainable finance initiatives, but the lack of comprehensive activity lists hinders independent assessments. Most banks do not disclose values of their sustainable financing, as per the report.

According to the report, five banks have set net zero targets but lack specific reduction pathways. This makes it difficult to assess progress and credibility, the report added.

The report adds that while the number of banks disclosing third party verification for their scope emissions has increased but significant improvements are still needed. (ANI)