Page 17 - Risk Management Bulletin January-June 2023

RMAI BULLETIN JANUARY - JUNE 2023

term threats to the world as well as the most environmental-friendly products and services, the
potentially damaging to people and planet, with financial, reputational and strategic risk
“climate action failure”, “extreme weather”, and implications are becoming increasingly prominent.
“biodiversity loss” ranking as the top three most 6. Furthermore, recognizing climate-related financial
severe risks. risk may pose risks to global financial stability,

3. Closer home, the latest annual report by the India Financial Stability Board (FSB) has chalked out a
Meteorological Department (IMD) on the roadmap to ensure that climate risks are properly
country’s climate stated that 2021 was not only reflected in all financial decisions. The roadmap
the fifth warmest year since 1901, but in the last supports international coordination by bringing
decade, 2012-2021, was also the warmest on together the work of international organisations
record. Moreover, 11 of the 15 warmest years on and national authorities on the various initiatives
record were between 2007 and 2021. The rise in in this area. The FSB will focus on four pillars
average temperatures could have a cascading namely, disclosures, data, vulnerabilities analysis,
effect on extreme weather events, crop patterns and regulatory and supervisory approaches. More
and urban disaster management. India recorded specifically, it would be monitoring and helping to
756 instances of natural disasters (landslides, support progress in the achievement of consistent
storms, earthquakes, floods, droughts, etc.) since climaterelated financial disclosures.
1900, with a total of 402 and 354 events recorded
during 1900-2000 and 2001-2021 respectively, Strategy on Climate Change
indicating the preponderance of tail events of late.
Globally the efforts to address climate change have
4. A report of the Ministry of Earth Sciences, been growing across jurisdictions and an increasing
Government of India has concluded that since the number of central banks are either contemplating or
middle of the twentieth century, India has are in the process of taking action on this aspect as
witnessed a rise in average temperature; a part of their mandates. Further, climate change risk is
decrease in monsoon precipitation; a rise in also ascending the hierarchy of threats to financial
extreme temperature, droughts, and sea levels; as stability across advanced and emerging economies
well as increase in the frequency and intensity of alike and consequently, the need for an appropriate
severe cyclones. There is compelling scientific framework to identify, assess and manage
evidence that human activities have influenced climaterelated risk has become imperative.
these changes in regional climate. These Notwithstanding the need to mitigate the risks arising
developments pose challenges for humanity and out of extreme climate events, there is an increasing
warrant an immediate, large-scale and rapid need for the financial system to move towards green
reduction in GHGs. financing, keeping in mind the social and

5. Concurrently, climate change is increasingly being developmental objectives of the country.
recognized globally as a source of financial risk for
banks. The uncertainty about the timing and Therefore, keeping in view our national commitments
severity of climate-related and environmental risk and priorities, the Reserve Bank intends to prepare a
certainly threatens the safety, soundness and strategy based on global best practices on mitigating
resilience of individual Regulated Entities (REs) the adverse impacts of climate change, learnings from
and, in turn, the stability of the overall financial participation in standard-setting bodies and other
system. It is therefore recognized that the REs international fora. The broad thrust of the strategy is
should steadily manage the risks and presented under the following heads:
opportunities that may arise from climate change A. Overview of climate related risk and its unique
and environmental degradation. Further, with the characteristics as applicable to REs
increasing threat of climate change and the B. Broad guidance for all REs to have (i) appropriate
associated physical damage, change in market governance (ii) strategy to address climate change
perception and shift in preferences towards more risks and (iii) risk management structure to

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