The Reserve Bank of India (RBI) has highlighted the need for annual green financing equivalent to 2.5% of India’s GDP to address the infrastructure gap created by climate events. The central bank’s annual report on currency and finance, released on Wednesday, has been themed around ‘Towards a Greener and Cleaner India.’ The report outlines how the country would require an annual reduction in the energy intensity of GDP of around 5% and a significant shift towards renewable energy to achieve the net zero target by 2070. It warns that the risks posed by climate change to the country’s macro-financial prospects require dedicated research.
RBI Governor Shaktikanta Das, in the report’s foreword, highlighted the complexity and non-linearity of the ways in which climate, economy, financial systems and related policies operate. He said, “Climate change induced risks… require dedicated research… Such research becomes even more critical in the context of the complexity and non-linearity of the ways in which climate, economy, financial systems and related policies operate.”
The report also outlined that the financial sector needs to recalibrate its operations and business strategies to support the green transition process while also strengthening resilience to rising vulnerability to adverse climate events. It warned that public sector banks may be more vulnerable to climate-related risks than private sector banks in India. The report said, “Results of a climate stress test reveal that public sector banks (PSBs) may be more vulnerable than private sector banks (PVBs) in India.”
While the report highlighted that India is becoming increasingly aware of climate risks and their potential impact on financial entities, mitigation plans are largely at the discussion stage and yet to be widely implemented. The RBI stressed that the measurement of climate-related financial risks is still a work in progress globally.
The RBI’s report is significant as it shows that India is taking the issue of climate change seriously and is willing to take action to mitigate its impacts. The need for green financing equivalent to 2.5% of GDP highlights the scale of the investment required to make India’s infrastructure more resilient to climate events. It also underscores the need for financial institutions to take climate risks seriously and develop mitigation plans to safeguard their operations against any climate-related risks. The RBI’s report will likely encourage the Indian financial sector to take a proactive approach towards sustainable financing and investing in renewable energy.
The RBI’s report on green financing and climate risks is an important step towards addressing the urgent need for climate action in India. The report’s emphasis on a coordinated effort from all stakeholders, including the government, financial institutions, and private sector companies, is critical in ensuring a holistic approach towards sustainable development. This approach recognizes that tackling climate change requires a collective effort from all sectors of the economy, and that the financial sector has a key role to play in supporting the transition to a low-carbon economy.
The report’s focus on green financing is particularly relevant in the Indian context, given the significant investment required to meet the country’s ambitious targets for renewable energy deployment and emissions reduction. The report’s recommendations for tax incentives, concessional financing, and green bonds can help to mobilize the necessary investment and provide a framework for sustainable finance. The creation of a dedicated green fund can also help to channel investment towards green infrastructure projects and support the development of a vibrant green finance ecosystem in the country.
The report’s findings also underscore the urgent need to address the impacts of climate change in India. The country has experienced a significant increase in extreme weather events, which have caused extensive damage to infrastructure and disrupted economic activities.
