Financial authorities to implement transparency regulations on climate change for banks and financial entities
The Reserve Bank of India (RBI) has announced a new set of regulations aimed at making the country's financial sector more resilient to climate threats. The rules, which will become mandatory from fiscal year 2027, require banks to incorporate climate risk into their financial decision-making without immediate impact on loan pricing.
Under the new regulations, banks will be required to compute and report the total emissions of their borrowers, categorised by asset class and industry. This move is part of the RBI's programme to make the financial sector more resilient to climate threats and advance India's long-term sustainability objectives.
In line with India's plan to direct funds towards climate-friendly industries for the 2025 United Nations Climate Change Conference (COP30) in Brazil, the RBI's regulations are designed to complement this effort. The RBI's program supports international efforts to transition to low-carbon economies and aligns with India's commitment to achieve net-zero carbon emissions by 2070.
To prepare for the RBI's mandated climate disclosure rules, several major Indian banks, including State Bank of India (SBI) and HDFC Bank, have hired climate adaptation consultants. The RBI will also release a guidance note mandating that banks conduct regular stress tests to assess the effects of extreme weather disasters on borrowers and the economy.
From fiscal year 2028, these disclosures will be mandatory for banks. Major banks in India are issuing tenders to hire climate consultants in response to the RBI's 2024 draft standard disclosure framework. The methodology for evaluating climate risks does not expect immediate impact on loan pricing.
Starting from fiscal year 2027, banks will be required to reveal climate-related risks in their loan portfolios, along with mitigation plans and goals. By promoting accountability and openness, the RBI's program positions India as a leading actor in the worldwide battle against climate change.
The RBI's climate disclosure regulations are expected to help redirect cash into sustainable sectors and support the country in meeting its climate objectives. The strategy seeks to make banks more resilient to environmental threats by incorporating climate risk into financial decision-making, without immediate impact on loan pricing.
India is also planning to unveil an updated national emissions-reduction target and has recently revealed a draft framework to facilitate this change. The upcoming regulations require banks to adhere to the RBI's climate disclosure framework, starting from fiscal year 2027. The RBI's program, by promoting accountability and openness, is a significant step towards India's commitment to combat climate change and achieve its long-term sustainability goals.
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