1. When and why did your institution join the NGFS?
The Reserve Bank of India (RBI) joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) on April 23, 2021. Climate change risk mitigation and having an enabling framework to facilitate flow of green finance requires technical knowledge, expertise and specific capacities. It also requires, among other things, learning from and experience sharing with other central banks/ financial supervisors. The NGFS with experts in fields ranging from climate change risks and finance, has been developing guidance on these multifaceted aspects. As such it provides a very good platform for central banks and financial supervisors across the world to share and learn from each other in this area. Therefore, joining the NGFS was considered as a natural choice.
2. Can you share with us the key elements of the RBI’s climate strategy and how it fits into the broader national strategy in your jurisdiction?
The RBI has adopted a multi-pronged approach for dealing with climate change related issues. It is based on two pillars – facilitative and prudential. The facilitative part involves capacity building, development of the ecosystem, and financing of green and sustainable transition; and the prudential part relates to risk management. Our strategy is aligned with and focuses on India’s nationally determined contribution and achievement of net zero by 2070, keeping in view priorities and complexity of the Indian financial system. Some of the elements of our strategy are:
• Scenario analysis and Stress Testing - In the short-term, making a realistic estimation of the impact of climate change risks on banks and financial institutions as also the financial system. This would involve scenario analysis and stress testing exercises, using both bottom-up and top-down approaches.
• Risk Management Guidelines - Developing climate related risk management framework for banks and financial institutions, building technical expertise and competencies for comprehensive assessment of losses that could arise due to climate related financial risks.
• Usage of Technology - Facilitating integration of technology and digital infrastructure in the transition towards a low-carbon economy.
• Fostering Green and Sustainable Finance - Channelising flow of credit to green and sustainable sectors, keeping in view the risk reward considerations.
• Reserve Bank - Climate Risk Information System (RB-CRIS) – Data plays a critical role towards assessment of climate change risks. Availability of data for assessment of climate change risks is marred with several limitations and gaps. RBI has announced the formulation of RB-CRIS for bridging data related gaps and standardising datasets to ensure comparability of financial impact assessment related to climate change. RB-CRIS is envisaged to cover data related to physical risk assessment, transition risk assessment, and carbon emission factor database.
• Disclosure requirements - Finalising the disclosure framework for banks and financial institutions thereby enabling them to put in place appropriate governance structure, risk management strategies and also measure climate change related risks.
3. To which extent did the RBI leverage the work of the NGFS in its own domestic journey? Any concrete examples?
The NGFS brings unique technical expertise and global best practices that any central bank would like to leverage upon in their approach to climate change related risks. The RBI with its officials as part of these groups has benefited a lot from the work done by the NGFS’ Workstreams, Task Forces, and Expert Networks. Coming to concrete examples, we have extensively used NGFS’s scenarios in our pilot climate vulnerability assessment and stress test (VAST) exercise conducted in 2022.
In this exercise, we used the NGFS long-term scenarios for transition risk assessment. Three NGFS scenarios of the third vintage were used, viz., Below 2°C (orderly) scenario, Divergent net zero (disorderly) scenario, and nationally determined contributions (hot house world) scenario. The other areas where RBI has benefited includes the work on adaptation and data directory. We are in process to develop a India specific data directory and the NGFS data directory is serving as a comprehensive repository to channelise our work.
4. One last word?
The NGFS has done significant amount of work for furthering the cause of climate change risk mitigation across the globe. The RBI shares a common vision with the NGFS to secure the future of our planet from climate change risks. We are committed to work in unison for this cause. I commend the dedication of the NGFS for its various pioneering initiatives that have helped equip central banks and financial regulators globally with the tools to take decisive action in managing climate related risks.