Page 25 - Banking Finance July 2025

ARTICLE

The Role of Banks

in Tackling

Climate Change

Ujjwal Kant
Chief Manager (Faculty)
Zonal Learning Centre
Union Bank of India
Lucknow

The Basel Committee on Banking Supervision (BCBS) is the primary global standard setter for the
prudential regulation of banks. It has introduced Basel III, a global voluntary framework for
regulating the financial sector. Basel III has three pillars: minimum capital requirements, supervisor
review and market discipline.

C limate change refers to long-term shifts in tempera- compasses the potential for negative consequences on so-
cieties and ecosystems due to the impacts of climate
tures and weather patterns. While such shifts can be
natural, the overwhelming scientific consensus is that
these impacts and the ability to respond to them. These risks
the climate changes observed since the mid-20th century change. It involves analysing the likelihood and severity of
are primarily driven by human activities. Climate risk en- are becoming increasingly apparent worldwide, manifest-
ing in a growing number of climate-driven disasters.
Banks have a multifaceted and crucial role to play in tack-
ling climate change. As primary providers of capital and key
players in the financial system, they can significantly influ-
ence the transition towards a low-carbon and climate-resil-
ient economy.

Introduction to Climate Related Finan-

cial Risk
1. Physical Risks: Physical risks concern the physical dam-
age to firms and assets from climate-related shocks and
stresses, such as rising temperatures, heavier rainfall
or rising sea levels. The costs of these damages may be
transmitted to a financial institution when they have
an interest in a project - for example, if a bank provided
a mortgage to a home on a floodplain or a pension fund
financed infrastructure that was damaged by a storm.

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