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Draft Disclosure framework on Climate-related Financial Risks

Reserve Bank of India (RBI) has released draft disclosure framework on climate-related financial risks.

What are climate-related financial risks?

Climate-related financial risks means the potential risks that may arise from climate change or from efforts to mitigate climate change, their related impacts and economic and financial consequences.

What is the need for climate-related financial risk management?

Given the increasing threat of climate change and the associated physical damage, changes in market perception and the transition towards more environment-friendly products and services, the impact of climate change on regulated entities (REs) is inevitable. The REs also play an important role in financing the transition towards an environmentally sustainable economy. Climate-related risks are expected to have implications on financial stability as well.

It is therefore imperative for the REs to implement a robust climate-related financial risk management policies and processes to effectively counter the impact of climate-related financial risks.

To whom shall the disclosure framework on climate-related financial risks be applicable?

The guidelines shall be applicable to the following entities –

Foreign banks shall make disclosures specific to their operations in India. Adoption of the guidelines is voluntary in case of REs other than those listed above.

What are the thematic pillars of disclosure?

The disclosures by the REs shall cover the following four thematic areas (Pillars) –

  • Governance – It should detail the governance processes, controls and procedures used by the RE to identify, assess, manage, mitigate, monitor and oversee climate-related financial risks and opportunities.
  • Strategy – It should detail the RE’s strategy for managing climate-related financial risks and opportunities. 
  • Risk Management – It should detail the RE’s processes to identify, assess, prioritize and monitor climate-related financial risks and opportunities, including whether and how those processes are integrated into and inform the RE’s overall risk management process. 
  • Metrics and Targets – The disclosures on metrics and targets should detail the RE’s performance in relation to its climate-related financial risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by statute or regulation. 

What are other guidelines for disclosure on climate-related financial risks?

  • The REs shall disclose the information on a standalone basis and not consolidated basis. 
  • The disclosures must be included and disclosed as a part of the RE’s financial results / statements on its website.

From when shall the disclosure framework on climate-related financial risks be applicable?

The glide path for detailed disclosures by the REs on the areas of “Governance”, “Strategy”, “Risk Management” and “Metrics and Targets” are as under –

 

 Governance, Strategy, and Risk Management Metrics and Targets
SCBs, AIFIs, Top and Upper layer NBFCs FY 2025-26 onwards FY 2027-28 onwards
Tier IV UCBs FY 2026-27 onwards FY 2028-29 onwards

References

Reserve Bank of India. (2024, February 28). 'Draft Disclosure framework on Climate-related Financial Risks, 2024'. Retrieved from https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=4393

Reserve Bank of India. (2024, February 28). 'RBI invites comments on the “Draft Disclosure framework on Climate-related Financial Risks, 2024”'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57408


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