The Reserve Bank of India (RBI) has released a draft framework for banks to manage and disclose climate-led financial risks.
What are Climate-Led Financial Risks?
- Climate-Led Financial Risks are risks that may impact financial stability due to climate change.
- Defined by the RBI as potential risks arising from climate change or efforts to mitigate it, along with their economic and financial consequences.
- They are emerging risks expected to significantly affect financial entities.
- These risks necessitate robust management to support the transition towards an environmentally sustainable economy.
What is the Draft Disclosure Framework About?
- Draft Disclosure Framework mandates that banks disclose climate-related financial risks and opportunities in their financial statements.
- It aims for early assessment of such risks and facilitates market discipline.
Which Organisations Come Under the Purview?
- All scheduled commercial banks (except local area banks, payments banks, and regional rural banks).
- All Tier-IV primary (urban) cooperative banks (UCBs).
- All top and upper layer non-banking financial companies (NBFCs).
What Should They Disclose?
- Identified climate-related risks and opportunities over the short, medium, and long term.
- Impact of these on their businesses, strategy, and financial planning.
- Resilience of their strategies under different climate scenarios.
What is the Need of This Framework?
- There is an urgent need for a consistent disclosure framework to avoid mispricing of assets and misallocation of capital.
- The framework aims to standardize disclosures on climate-related financial risks.
Ref:Source
| UPSC IAS Preparation Resources | |
| Current Affairs Analysis | Topperspedia |
| GS Shots | Simply Explained |
| Daily Flash Cards | Daily Quiz |