RBI Guidelines on Climate risk, sustainable finance

February 10, 2023

In July 2022, the Reserve Bank of India released a discussion paper called Climate Risk and Sustainable Finance. The discussion paper of RBI analyses an issue from different angles and provides solutions and guidelines to solve the problem. Based on the Climate Risk and Sustainable Finance discussion paper, the bank is to release guidelines on accepting green deposits; a framework to deal with climate-related financial risks.

About the Guidelines

RBI says that climate change has the full potential to transform into climate-related financial risks. The guidelines are not yet released. RBI will release it in a phased manner. The guidelines will have all instructions related to climate risks.

What is climate-related financial risk?

The RBI discussion paper defines the term as “Potential risk arising from climate change”. The climate-related financial risks occur in two main forms. They are physical risks and transition risks.

According to the discussion paper, physical climate-related risks are those risks that come directly from climatic events. This includes risks from storms, floods, wildfires, etc. The transition risks are those risks coming from climate change-related policies, technologies, etc.

What are Green Deposits?

The Green Deposits are Fixed Deposits. The only difference between an ordinary fixed deposit and the green deposit is that, in green deposits, the amount deposited in the bank will be used to implement renewable energy projects.

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