Banks may be more severely impacted by climate transition risks says RBI Deputy Governor

Michael Debabrata Patra, Deputy Governor, Reserve Bank of India noted in a speech that climate change is overwhelming us, imperilling humanity and the planet. Green swan events due to climate change are likely to recur with rising intensity. Threats to financial stability through physical risks and transition risks are already impacting the balance sheets and operations of banks and other financial intermediaries from the rising incidence of economic costs and financial losses from severe climate events. As economies transition towards net zero targets, banks may be even more severely impacted by transition risks from policy changes, technological developments and investor and consumer preferences influenced by environmental, social and governance (ESG) goals. From the point of view of deposit insurance, climate risks are different from traditional risks in the sense that effective insurance schemes and hedging tools are not available. Furthermore, modelling these risks is challenging due to evolving green taxonomy and non-availability of data on greenhouse gas (GHG) emissions, particularly on emissions down the value chain or scope 3 emissions.

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