The climate-specific vulnerabilities’ interplay with real economy and financial sector vulnerabilities can lead to financial stability risks, Reserve Bank Deputy Governor M Rajeshwar Rao said
New Delhi: Reserve Bank Deputy Governor M Rajeshwar Rao has stressed on building capabilities to ensure correct assessment of climate-related risks and put in place suitable measures to mitigate them.
Addressing an international conference, organised by the Institute of South Asian Studies (ISAS) at the National University of Singapore (NUS), the Deputy Governor said climate change risks have started to impact the financial system and are envisaged to pose systemic risks in the coming future.
The climate-specific vulnerabilities’ interplay with real economy and financial sector vulnerabilities can lead to financial stability risks, Rao said.
“In this context, it is essential to build capabilities to ensure correct assessment of these risks and put in place suitable adaptation and mitigation measures,” he said.
Rao further said that transparency and capacity building are going to be the key differentiators and we need to collectively move in this direction.
“We have a huge responsibility ahead of us and I am hopeful that together we will be able to provide a definitive roadmap for sustainable growth and environment for the future generations,” the senior RBI official said.
As per the latest report from the Copernicus Climate Change Service’s, 2024 will be the warmest year in the ERA5 reanalysis dataset, going back to 1940.
This was also estimated to be the second-warmest October globally, after October 2023 with the average temperatures 1.65ºC above the pre-industrial level while also marking it the 15th month in a 16-month period where average temperatures were above the 1.5ºC threshold set by the Paris Agreement.
“Thus, the writing on the wall seems to tell us that unless we collectively take strong action, a grim future lies ahead,” the Deputy Governor said.
Rao highlighted that the recent tragic events, be it in Valencia, Spain, Wayanad, Kerala, or back-to-back hurricanes in the USA, are stark reminders of the perils of climate change that the world at large is exposed to.
It impacts our day-to-day lives in one form or other be it through heavy rainfall, flash floods, cyclones, droughts, melting of glaciers, loss of biodiversity, and that too with increased frequency and severity, he said.
There can be no doubt therefore that climate change is going to be a major risk for the financial system, economy, and society at large with risks of severe catastrophic events putting at stake our very survival, Rao added.
The Reserve Bank of India has been proactive in its resolve to assess and mitigate the climate change risks that may impact the financial system.
Over the last few years, it has taken several incremental measures in this direction. It started with the setting up a dedicated group within the RBI to assess climate change risks and foster a robust ecosystem for sustainable finance.
This was followed by the release of a survey on climate risk and sustainable finance covering 34 scheduled commercial banks, a discussion paper on climate risk and sustainable finance, followed by the release of a framework on green deposits.