Mumbai:
On climate-related risk in the Indian economy,.the Financial Stabilty Report(FSB), released by the Reserve Bank of India (RBI) on Monday, has noted that the value of financial assets/liabilities could be affected either by continuation in climate change (physical risks), or by an adjustment towards a low-carbon economy (transition risks).
The manifestation of physical risks could lead to a sharp fall in asset prices and increase in uncertainty and a disorderly transition to a low carbon economy could also have a destabilising effect on the financial system, said the report..
Climate-related risks may also give rise to abrupt increases in risk premia across a wide range of assets amplifying credit, liquidity and counterparty risks, cautioned the report..
Such changes could lead to a self-reinforcing reduction in bank lending and insurance provision.
The report also observes that the efficacy of actions taken by financial firms to mitigate climate-related risks may be hampered by lack of data with which to assess clients’ exposures to climate-related risks or the magnitude of climate-related effects.