Indian banks grapple with climate crisis amid ambitious goals: Report

As India continues to make strides in its commitment to combat climate change, its financial sector finds itself at a crossroads. A report by Climate Risk Horizons (CRH) has revealed that the country's banks are alarmingly ill-equipped to address climate change risks. While India pledged to achieve net-zero emissions by 2070 at the Glasgow Climate Meet, its banking sector has been slow to incorporate climate risks into their policies.The report, which assessed 34 top banks on various parameters related to climate risk management, found that most of them lack policies addressing fossil fuel use, emissions limits, and climate scenario analysis. CRH's survey highlighted that public sector banks are particularly vulnerable to large capital shortfalls due to adverse climate shocks.
CRH’s report noted, "Extreme weather events in 2022 claimed 3,026 lives and affected crop areas. Preparedness for climate risks means that they have to be measured and managed. And this is exactly where Indian banks are lagging."India faced another year of climate related disasters in 2023, with flooding and landslides in Uttarakhand and Himachal Pradesh resulting in significant loss of life and property. The financial toll is estimated to be substantial, highlighting the urgent need for banks to address climate risks.The report also emphasized the importance of joining international climate initiative associations, such as the Partnership for Carbon Accounting Financials (PCAF) and the Task Force on Climate-Related Financial Disclosures (TCFD). These associations provide expertise and guidance on climate accounting and reporting.
GHG accounting, a critical aspect of addressing climate risks, involves measuring greenhouse gas emissions, including carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O). It's crucial for financial institutions to measure and report their Scope 1 (direct emissions) and Scope 2 (indirect emissions) emissions. However, Scope 3 emissions, which encompass emissions from a company's value chain, remain challenging to measure but are vital for financial institutions to track.According to CRH's data, only 10 out of the 34 banks have begun disclosing Scope 1 and 2 emissions, with 8 of them also starting to disclose some Scope 3 emissions. Notably, none of the banks have calculated the impact of different climate scenarios on their portfolios. Furthermore, only 10 banks have disclosed the amount of green finance disbursed, and none have set comprehensive net-zero targets covering all three scope emissions.
CRH has urged Indian banks to take concrete steps towards aligning with India's climate goals. This includes increased lending for the country's energy transition targets, transparent disclosure of climate-related figures, and ensuring that fossil fuel- dependent industries they finance develop science-based transition plans. As the world grapples with the consequences of climate change, India's banking sector faces mounting pressure to play a pivotal role in combating climate risks.

(Ira Singh, Asstt Editor)