RBI survey shows India’s commercial banks lack a board-level focus on climate risk

Reserve Bank of India (RBI), India’s central bank has released the results of a survey on climate risk and sustainable finance that was conducted in January 2022. The survey, which was carried out by the RBI’s sustainable finance group, covered 34 commercial banks including 12 public sector banks, 16 private sector banks and 6 foreign banks operating in India. One of the key findings from the survey was that banks lack an institutional and strategic focus on climate risk management. The results show that “in about a third of the banks that were surveyed, responsibility for overseeing initiatives related to climate risk and sustainability was yet to be assigned. Furthermore, only a few banks have included climate risk / sustainability / environmental, social and governance (ESG) related Key Performance Indicators (KPIs) in the performance evaluation of their top management”. Consequently, even though banks indicated that they perceived climate risk as an urgent risk management issue, only 1 in 3 banks have taken adequate measures to analyse the effect of climate risks on their loan and investment portfolios. In addition, several domestic banks are yet to align their climate-related disclosures with international frameworks. Commercial banks play a critical role in facilitating the transition in emerging markets such as India where bank-based lending dominates credit cycles. Therefore, the findings from RBI’s survey are significant and policy-relevant.