RBI urges financial institutions to disclose climate risks
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The Reserve Bank of India (RBI) on Wednesday proposed a four-year road map starting 2025-26 for regulated entities (REs) – banks, financial institutions, and non-banking finance companies (NBFCs) – to disclose climate-related financial risks under the standard framework.
The regulated entities would have to give information related to risks covering four areas – governance, strategy, risk management, metrics, and targets.
Under the draft plan, RBI commercial banks, All India financial institutions, and top and upper layer NBFCs will have to begin to provide information on governance, strategy, and risk management strategy from 2025-26 and begin disclosure metrics and targets from 2027-28.
The Urban Cooperative Banks in Tier-IV, those with deposits more than Rs 10,000 crore would begin to make disclosures on governance, strategy, risk management strategy from FY27, and metrics and targets from FY29.
The payment banks, regional rural banks, and local area banks are excluded from disclosures.
RBI in the draft disclosure framework said REs are already required to disclose information on material risks as part of their Pillar 3 disclosures.
There was a need for REs to disclose more structured information about their climate-related financial risks and opportunities for the users of financial statements as it would foster an early assessment of risks and opportunities and also facilitate market discipline, it said.
There was a need for a better, consistent, and comparable disclosure framework for REs, as inadequate information about climate-related financial risks can lead to mispricing of assets and misallocation of capital by them, it added.
On the theme of governance-related disclosure, RBI said REs should detail the governance processes, controls, and procedures used to identify, assess, manage, mitigate, monitor, and oversee climate-related financial risks and opportunities.
It should dwell on the board’s oversight of climate-related risks and opportunities and senior management’s role in assessing and managing climate-related risks and opportunities, it said.
The disclosure under the second theme --- strategy -- should spell out how REs would manage climate-related financial risks and opportunities, keeping in mind short, medium, and long-term horizons, it elaborated.
The regulated entities would have to give information related to risks covering four areas – governance, strategy, risk management, metrics, and targets.
Under the draft plan, RBI commercial banks, All India financial institutions, and top and upper layer NBFCs will have to begin to provide information on governance, strategy, and risk management strategy from 2025-26 and begin disclosure metrics and targets from 2027-28.
The Urban Cooperative Banks in Tier-IV, those with deposits more than Rs 10,000 crore would begin to make disclosures on governance, strategy, risk management strategy from FY27, and metrics and targets from FY29.
The payment banks, regional rural banks, and local area banks are excluded from disclosures.
RBI in the draft disclosure framework said REs are already required to disclose information on material risks as part of their Pillar 3 disclosures.
There was a need for REs to disclose more structured information about their climate-related financial risks and opportunities for the users of financial statements as it would foster an early assessment of risks and opportunities and also facilitate market discipline, it said.
There was a need for a better, consistent, and comparable disclosure framework for REs, as inadequate information about climate-related financial risks can lead to mispricing of assets and misallocation of capital by them, it added.
On the theme of governance-related disclosure, RBI said REs should detail the governance processes, controls, and procedures used to identify, assess, manage, mitigate, monitor, and oversee climate-related financial risks and opportunities.
It should dwell on the board’s oversight of climate-related risks and opportunities and senior management’s role in assessing and managing climate-related risks and opportunities, it said.
The disclosure under the second theme --- strategy -- should spell out how REs would manage climate-related financial risks and opportunities, keeping in mind short, medium, and long-term horizons, it elaborated.
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