Insufficient board-level, management involvement in environmental issues, according to an RBI poll

28 Jul 2022 , 08:18 AM

According to a Reserve Bank poll, banks’ top management is “inadequately” involved in discussions about climate risk and sustainable financing, and the lenders must step up their environmental efforts.

Regulators, national authorities, and supranational organizations are all paying attention to climate risk and sustainable finance.

The changes in Earth’s climate that have been noticed in every location across the whole climate system were emphasized in the Intergovernmental Panel on Climate Change (IPCC) Report from August 2021.

According to a statement released by the RBI on Wednesday, the Survey on Climate Risk and Sustainable Finance undertaken in January this year included 34 top scheduled commercial banks, including 12 public sector banks, 16 private sector banks, and 6 top international banks operating in India.

According to the findings, there is a lack of board-level involvement in climate risk and sustainable finance, and for nearly a third of the banks examined, no one was in charge of supervising projects pertaining to climate risk and sustainability.

Furthermore, just a few banks have Key Performance Indicators (KPIs) for climate risk, sustainability, environmental, social, and governance (ESG) in the performance evaluation of their senior management.

According to the RBI, almost all of the banks questioned acknowledged the gravity of the situation and most of them saw climate-related financial risks as a serious danger to their operations.

A few banks have either set a goal for increased lending and investment for sustainable finance or have raised fresh capital to scale up green lending and investment. To take advantage of the potential presented by climate change, most banks have introduced a few lending programs.

According to the survey, most banks have not standardized their financial disclosures on climate change with any widely recognized framework. The RBI emphasized that banks must set up a system for directing and stepping up actions related to climate risk and sustainability at either the board or top management level.

Additionally, it stated that banks may think about raising fresh capital to increase lending and investment in the green sector or set a goal for increased lending and investment in sustainable financing.

A Sustainable Finance Group (SFG) was established by the RBI in May 2021 to oversee activities and regulatory actions in the fields of climate risk and sustainable finance.