Category: Banking & Finance

About Rs 6.19 lakh crore of debt at India’s leading financial institutions was at risk from extreme weather events such as droughts, floods and cyclones, according to non-profit CDP that has been lobbying banks to measure and disclose the risk climate change may pose to their portfolio.

The organisation has reached the figure based on information provided by some of the biggest lenders, including the State Bank of India and HDFC Bank.

The reason

Indian banks need to plan for a transition for a cleaner future even though they may be locked into funding coal projects for the near term. That’s because the government is still trying to do coal auctions and the industry is still reliant on coal. A lot of the iron and steel and the heavy industry use coal as a fuel. The encouraging sign is that the government has also initiated a plan for green hydrogen, according to CDP. Banks need to look at these newer technologies, newer methods of fuel substitution. All these things require policy support and public capital.

Bank initiatives

State Bank of India is talking about agriculture and allied agri-activities, HDFC Bank has done a scenario analysis in five states on agriculture, flooding and it’s its portfolio in sectors such as steel, cement, power, oil and gas.

SBI, which is facing concerns from shareholders and investors over its proposal to help fund the controversial Carmichael coal mine in northern Australia, valued its total climate risk at Rs 3.83 lakh crore. The bank said it may “indirectly face reputational risks, should it be involved in lending to environmentally sensitive projects which may have significant public opposition.”

SBI has tied up with the European Investment Bank to jointly pump Euro 100 million in equity financing into Indian small businesses focused on climate change and sustainability.

SBI already invests in a vehicle called Neev Funds for its impact investing objectives, and the two entities have created ”Neev Fund II” for taking ahead this partnership. This is one of the EIB’s first private equity investments in India.

Reserve Bank of India

The Reserve Bank of India (RBI) has been talking about green finance for many years and has taken various steps towards it. It has pushed, on the lines of corporate social responsibility for private companies, the concept of Environmental, Social and Governance (ESG) principles into financing aspects. In April this year, the RBI joined the Network for Greening the Financial System (NGFS) in April 2021. The NGFS, launched in December 2017 at the Paris One Planet Summit, is a group of central banks and supervisors from across the globe to share the best practices and contribute to the development of the environment and climate risk management in the financial sector. It is an institutional yet voluntarily membership, which will also help mobilise mainstream finance to support the transition toward a sustainable economy.

The status

India is the only major economy to not have a net-zero emissions target now, even China has a net-zero target. You need If India wants to be net-zero on emissions by 2050, on a broad calculation, its need to have 50% reduction by 2030, according to CDP. This is the action of the decade on climate change and if the opportunity is missed in this decade, it may be too late, it said, according to an S&P Global report.

UN climate change warning

The Indian Ocean is warming at a higher rate than other oceans, the latest report by the Intergovernmental Panel on Climate Change said on Monday, with scientists warning that India will witness increased heatwaves and flooding, which will be the irreversible effects of climate change.

For a country like India, some of the increase in heat waves is masked by aerosol emissions, and reducing that is important for air quality. We will also see an increase in the heatwaves, heavy rainfall events, and the further melting of glaciers, which will impact a country like India, more compound events from sea-level rise, which could mean flooding when tropical cyclones hit. These are some of the impacts which will not go away,” Friederike Otto, one of the authors of the report, said.