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Draft Disclosure Framework on Climate-Related Financial Risks, 2024

On July 27, 2022, the Reserve Bank of India (RBI) had issued a Discussion Paper on Climate Risk and Sustainable Finance, which had thoroughly outlined the sources of climate risk and the potential impact on renewable energies. Following this, the RBI on February 27, 2024, issued Draft Disclosure framework on Climate-related Financial Risks, 2024, vide notification No RBI/2023-24/, DOR.SFG.REC. /30.01.021/2023-24.

The framework is applicable to all Scheduled Commercial Banks (excluding Local Area Banks, Payments Banks and Regional Rural Banks, all Tier-IV Primary (Urban) Co-operative Banks (UCBs), All-India Financial Institutions Export-Import Bank of India (EXIM) Bank, National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB), Small Industries Development Bank of India (SIDBI) and National Bank for Financing Infrastructure and Development (NaBFID) and all Top and UpperĀ  Layer Non- Banking Financial Corporations (NBFCs)

The draft framework requires Regulated entities (REs) to make disclosures under four thematic pillars i.e. Governance, Strategy, Risk Management and Metrics and Targets. SCBs, AIFIs, Top and Upper layer NBFCs have to begin disclosures under the first three thematic pillars from FY 2025-26 onwards and the fourth thematic pillar from FY 2027-28 onwards whereas Tier IV UCBs have to begin disclosures under the first three thematic pillars from FY 2026-27 onwards and the fourth thematic pillar from FY 2028-29 onwards. Disclosure requirements for the other REs would be announced in due course.

The lenders have already provided information regarding significant risks. Currently, the RBI has recommended that lenders reveal the involvement of management in governance processes, controls, and procedures, and whether it is assigned to a particular management-level position. The disclosure should also cover the climate resilience of the strategy adopted, including the business model’s response to climate-related changes, developments, and uncertainties.

It requires assessing current financial resources and their adaptability to tackle climate-related risks and opportunities highlighted in scenario analyses. It also considers the effects of existing and future investments in climate change prevention, preparedness, and recovery projects. Lenders are required to disclose information on a standalone basis, while foreign banks must make disclosures specific to their operations in India.