Page 20 - Risk Management Bulletin January-June 2023

RMAI BULLETIN JANUARY - JUNE 2023

Governance, Strategy, Risk Management, Stress and ensure that sufficient internal / external expertise
Testing, Scenario Analysis and Disclosure has been is available for managing the financial risks arising from
covered in the subsequent sections. climate change and environmental degradation. To
facilitate effective oversight, the Board of Directors and
Discussion Question 2: What should be the way Senior Management may regularly seek relevant
forward for the regulatory policy framework for management information, as well as updates on major
climate risk in an emerging market like India policy initiatives and developments concerning
keeping in view its aspects such as demography, climate-related and environmental issues.
geography, etc.? Is there any plan / contemplation
in the REs to integrate climate and environmental Good Practices
considerations in their core activities of lending and
REs may have a committee / sub-committee at the
investment?
Board level comprising experts from sustainability
and risk domain with the following responsibilities:
B. Broad guidance for all REs to have (i) • Guiding climate-related policy, strategy,
appropriate governance (ii) strategy to objective-setting, and performance monitoring
address climate change risks and (iii) risk • Mandating processes to identify and manage
management structure to effectively climate-related and environmental risks and
manage them from a micro-prudential opportunities
perspective • Monitoring timely and regular updation of the
internal risk reports, the mitigation measures
Governance and their effectiveness thereof
B.1 The Board of Directors would have to play a critical • Monitoring and overseeing the progress on
role in identifying climate-related and environmental
relevant goals and targets
risks and opportunities and assessing the actual and
• Guiding external disclosures.
potential impact of these risks on REs’ strategies and
plans. They may also need to understand and regularly
Strategy
assess the current and future financial risks arising
from climate change and environmental degradation B.4 The effectiveness and resilience of REs in
that may affect the RE. navigating climate-related and environment risk needs
to be supported through proper formulation, planning
B.2 The Board of Directors would have to oversee the and implementation of climate and environment
development and implementation of the environment strategy, and embedding climate and environment
and climate-related risk strategy of the RE by ensuring considerations within the organization. REs may
that the strategic goals are in line with their vision; determine impact of climate-related and
systems and controls are in place to support environmental risk on their business strategy in the
implementation of the strategy; foster a risk culture short, medium and long-term.
that includes climate related and environmental
considerations into decision-making process and both B.5 The financial risk emanating from climate and
the business and the assurance functions dealing with environmental degradation would have to be assessed
it are adequately staffed. As the ‘tone at the top’ plays and addressed within the overall business strategy and
a key role in shaping the risk culture, there may be risk appetite. The risk appetite framework of REs could
need to clearly define the roles and responsibilities of include the risk exposure limits and thresholds of
senior management as regards the management of financial risks that the RE is willing to take. While
climate-related and environmental risk. formulating the risk appetite framework, the Board
would need to ensure that it considers the factors like
B.3 The Board of Directors would also have to exercise the long-term financial interest of the RE, results of
effective oversight on risk management and controls stress testing and scenario analysis.

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