The RBI will strengthen climate resilience in India’s financial system, said Governor Sanjay Malhotra, emphasizing a dual strategy—facilitative and prudential measures—alongside innovative initiatives and collaboration with regulators and the government.

Climate Change Risks to Financial Systems

Climate change brings physical risks (e.g., extreme weather events like floods) and transition risks (e.g., asset devaluation from shifts to a low-carbon economy). Credit risk rises from defaults tied to disasters, market risk from stranded assets, and operational risk from disruptions—all intensified by climate change.

Climate change poses a risk to every industry, affecting them variably depending on factors such as their location, their raw materials and their labour methods. Estimating the risks posed is extremely challenging due to the inconsistent and unpredictable frequency, severity, and financial impact of climate change.

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RBI’s Strategic Response

A dual approach is proposed, beginning with facilitative support for capacity building, green financing, and sustainable ecosystem development combined with a prudential aspect to enhance risk management to tackle climate-induced financial vulnerabilities.

RBI’s regulatory sandbox fosters new solutions with a planned “on Tap” cohort dedicated to climate change and sustainable finance. A challenging intellectual marathon to produce innovative solutions and ideas to address climate-related financial challenges called a “Greenathon” was proposed.

These efforts and strategies are aligned with India’s values both economically and as a nation, with climate change posing escalating threats to ecosystems, livelihoods, and economies.

Collaboration and Future Outlook

RBI will strengthen climate resilience in India’s financial system, and it advocates a tailored, country-specific approach to climate resilience, reflecting India’s unique needs. The RBI plans to reach out to collaborators within the government and other regulators by integrating innovation and cooperation and supporting sustainable growth. Governor Malhotra’s initiatives position India as a key player in global climate-resilient finance.

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