In a year marked by extreme weather events and climate challenges, India witnessed an alarming revelation about its banking sector’s unpreparedness to confront climate risks. A groundbreaking analysis by the Bengaluru-based think tank Climate Risk Horizons has uncovered unsettling truths about the Indian banking landscape. The report titled “Still Unprepared” delves into the assessment of India’s major banks during the tumultuous year of 2022, exposing significant gaps in their readiness to measure, manage, and mitigate climate-related risks. As climate change accelerates, the need for financial institutions to safeguard against these risks has never been more pressing. This article delves deeper into the report’s findings and the implications for India’s financial stability and environmental resilience.
Climate Disruption’s Unyielding Onslaught: A Harrowing Year
The annals of 2022 will forever be etched in India’s collective memory as a year when the nation found itself besieged by an unrelenting barrage of extreme weather events. In a staggering twist of fate, out of the 365 days that constituted the year, an overwhelming 314 were marred with floods, heatwaves, and an array of climatic extremities. Nature’s fury spared no corner of the land, leaving no doubt that the spectre of climate change had firmly gripped the nation. The toll extracted by these relentless disruptions transcended mere environmental upheaval; it reverberated through the intricate fabric of the Indian economy and the portfolios of investors.
Yet, this toll wasn’t confined to ecological devastation alone; its repercussions rippled across economic landscapes, sending shockwaves through financial markets and investment circles. As the “Still Unprepared” report so aptly underscores, these events signify more than just ecological concerns; they bear a weight of grave financial implications that demand immediate attention. Sagar Asapur, the visionary head of Sustainable Finance for Climate Risk Horizons and one of the architects behind the report, succinctly captures the gravity of the situation, emphasising that this isn’t a mere ecological issue. Instead, it’s a seismic economic challenge that has real, tangible consequences for the Indian economy and its investors.
Amidst the chaos and clamour of these climatic upheavals, the imperative for action emerges as a clarion call for India’s banking sector. The echoes of this year’s tumultuous weather underscore the urgency for financial institutions to fortify themselves against the impending climate storm. The need for robust strategies, resilient policies, and forward-thinking approaches has never been more pronounced. As the nation grapples with the formidable task of reconciling its economic ambitions with its environmental responsibilities, the banking sector stands at the vanguard of this transformation. The resilience it builds today will determine not only the financial future of the nation but also its capacity to withstand the tempestuous forces of climate change.
Banks: Navigating the Storm of Climate Disruption
In the midst of the turbulent climate landscape, the scrutiny turned toward India’s 34 largest banks, collectively holding a formidable market capitalisation of Rs 29.5 trillion. This comprehensive evaluation, undertaken by the think tank Climate Risk Horizons, sought to shed light on the preparedness of the financial sector to grapple with the formidable challenges posed by climate risks. The criteria for this rigorous assessment spanned a wide spectrum of factors, ranging from the existence of a fossil fuel exclusion policy to transparency in emissions disclosure, strategic climate scenario analysis, and the setting of ambitious Net Zero Targets.
During this assessment, certain institutions emerged as beacons of climate-risk readiness. The resolute performance of Yes Bank, HDFC Bank, and Axis Bank set them apart as trailblazers in terms of their commitment to preparing for the climate future. These three financial juggernauts, driven by their conscientious strategies, exemplify the transformative potential that exists when banks align their operations with the evolving climate landscape. Their actions, alongside their fellow banks, will undoubtedly reverberate across India’s financial sector and hold implications for the nation’s economic and environmental security.
However, as the report delved deeper, a less optimistic scenario came forth. Despite the mounting pressure to address carbon emissions, a mere eight banks had ventured to disclose their indirect emissions stemming from their financial activities. This glimpse into the slow pace of progress reveals the stark reality that the financial sector’s efforts to grapple with climate risks are still in their nascent stages. While some institutions have taken strides toward acknowledging their indirect impact on emissions, a larger chorus of the banking landscape remains muffled in terms of transparency.
Perhaps the most striking revelation was the singular commitment demonstrated by Yes Bank, actively measuring the emissions linked to its funded projects. However, the boundaries of this endeavour remained confined within the parameters of the electricity sector, highlighting the need for a more holistic assessment that encompasses a broader range of industries. This granular approach to emissions measurement represents a noteworthy step, yet it raises the question of why the larger banking community has not yet embarked on comprehensive climate-related scenario analyses.
In the face of an increasingly volatile climate, characterised by extreme events that reverberate across the globe, the absence of such proactive analyses is perplexing. The report’s findings underscore the urgency of fostering forward-looking strategies that consider the intricacies of a climate-altered future. The dearth of climate scenario analyses not only undermines the resilience of the financial sector but also casts a shadow over the sector’s role in shaping India’s broader climate policy.
The report’s spotlight on public banks reveals a disconcerting misalignment with India’s climate ambitions. The transition to renewable energy is pivotal to the nation’s climate agenda, yet the report exposes that public sector banks, which should play a leading role in financing this transition, have allocated a mere fraction—less than eight per cent—of their total financing to support renewable energy projects. This discrepancy clashes with the Reserve Bank of India’s warnings that the climate crisis could metamorphose into a systemic risk for the Indian economy.
The irony is palpable: a critical component of India’s climate policy remains inadequately financed by institutions that should be driving this transition. A mere ten banks, within the entire spectrum of India’s financial sector, have chosen to divulge their green financing activities, highlighting a glaring lack of transparency. This disjointed approach not only jeopardises India’s climate goals but also hinders the financial sector’s ability to respond adeptly to the ever-growing climate vulnerabilities.
In the face of these revelations, the financial sector finds itself at a crossroads. It has the potential to transform from being a potential amplifier of climate risks to a formidable partner in bolstering India’s resilience to climate challenges. The report’s resounding call for proactive disclosure of green finances, adoption of a common reporting format, and the employment of climate scenario analyses resonate as a call for immediate action. As India and the world grapple with the forces of climate change, the financial sector must rise to the occasion, reshaping its strategies to withstand the climate storm and foster a more sustainable future for both the economy and the environment.
Charting a Course for Resilience
The report doesn’t just diagnose the problem; it prescribes essential measures to rectify the situation. Proactive disclosure of green finances, adopting a common reporting format, formulating transition plans for fossil fuel financing, and deploying climate scenario analyses are underscored as critical steps to counter the looming climate risks. The urgency is palpable, as experts concur that Indian banks’ hesitancy to finance climate adaptation projects stems from a skewed perception of short-term returns on investment. The financial sector’s current lack of instruments to protect, insure, or mitigate climate risks associated with loans and investments underscores the pressing need for change.
Vaibhav Chaturvedi, a fellow at the Council on Energy, Environment, and Water, emphasises that while global efforts on this front are relatively young, the unfolding climate crises and the economic upheaval caused by the pandemic mandate that Indian banks and financial institutions engage with the climate agenda without delay. The alignment of banks’ strategies with the broader climate policies of the country and their active support for climate projects and disaster recovery due to climate-related events are pivotal to fortifying India’s financial resilience against climate vulnerabilities.
A Call to Action
As the realities of climate change continue to grip India and the world, it is undeniable that the financial sector must shoulder its share of the responsibility. The “Still Unprepared” report is a stark wake-up call that compels the Indian banking sector to reevaluate its strategies and align them with the demands of a rapidly changing climate landscape. The consequences of inaction are dire, ranging from financial instability to the undermining of India’s climate policy goals. Urgent steps must be taken to address the gaps highlighted in the report, transforming the financial sector from a potential climate risk amplifier to a crucial partner in building climate resilience and sustainability. The time to act is now, for India’s economic future and environmental well-being hang in the balance.
