Indian Banks Unprepared for Climate-Related Financial Risks: Climate Risk Horizons Report

Climate Change: A Growing Risk for Indian Banking Sector

A new report titled "Unprepared" by Climate Risk Horizons (CRH) has raised red flags about the Indian banking sector's readiness to tackle climate-related financial risks. As the effects of climate change escalate globally, banks in India are significantly lagging behind in integrating these risks into their core business strategies, lending practices, and disclosures.

Scope and Scale of the Study

The report assessed 35 of India’s largest scheduled commercial banks by market capitalisation as of March 2024. These included:

11 public sector banks
18 private sector banks
6 small finance banks

Collectively, these banks account for a combined market capitalisation of ₹4,582,292 crore, representing a major portion of India’s financial system.

Key Findings: Gaps in Climate Preparedness

Emissions Disclosure Deficit:
- Only 7 out of 35 banks disclosed all three categories of greenhouse gas emissions — Scope 1 (direct emissions), Scope 2 (indirect energy emissions), and Scope 3 (value chain emissions).
- This lack of transparency limits accountability and effective risk assessment.
Inadequate Climate Strategy Integration:
- Most banks have not integrated climate risks into their credit assessment, investment portfolios, or lending decisions.
- While some have adopted sustainability frameworks like the Sustainable Development Goals (SDGs) and Partnership for Carbon Accounting Financials (PCAF), implementation remains weak.
Net Zero Targets Without Roadmaps:
- Only five banks have announced net zero targets.
- None of these banks provided clear, measurable pathways for emission reduction, making it difficult to assess progress or credibility.
Sustainable Finance: Token Talk, Minimal Action
- Though several banks claim to support green finance, very few disclose the monetary value of sustainable finance projects.
- The absence of detailed activity lists restricts independent verification and analysis.

A Few Positive Developments

Climate risk scenario analysis and risk management practices are slowly gaining traction in the Indian banking sector.
A growing number of banks are submitting their emissions data for third-party verification, reflecting a marginal improvement in transparency.

However, the report stresses that these steps are not yet sufficient to bring Indian banks in line with global climate finance standards.

Call to Action: Regulatory Urgency

The CRH report underscores the urgent need for policy-level intervention. It recommends that:

The Reserve Bank of India (RBI) and the Union Government issue clearer regulatory frameworks on climate risk disclosures.
A standardised, enforceable climate risk framework should be adopted by all banks.
Capacity building and technical support should be prioritised to help financial institutions develop sustainable portfolios.

Conclusion

India’s banking sector stands at a critical juncture. As global financial systems transition toward sustainability, failure to integrate climate risk could have severe implications for financial stability, investor confidence, and long-term economic growth.

The report is a stark reminder that the time for symbolic green pledges is over — what’s needed now is credible action, transparent metrics, and regulatory alignment to build a resilient and climate-conscious financial ecosystem.

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