How to see green as greenbacks
RBI has flagged risks in monetary policy on account of climate change in its study, 'Draft Disclosure Framework on Climate-Related Financial Risks 2024', in February. In this, the central bank is leading from the front after floating a discussion paper on mitigating climate risk by banks.
RBI has a key role in shaping the governance structure around green finance, and it is now in step with similar actions by other central banks. For itself, the central bank is proposing an explicit modelling of climate event risks into its policy framework for interest-rate movements and monetary transmission.
For the rest of the banking system, it has a longer list of actionable items such as governance, risk management and disclosure. Both processes will have to be completed for the markets to efficiently price the differential between regular and green bonds.
Climate finance will acquire a more central role over the coming decades as economies redirect financial flows to address the causes and consequences of global warming.
The world is calculating the cost of what it will take to limit climate change to 1.5° C, protect 30% of land and sea, and reach neutrality over land degradation. Countries are haggling over who picks up how much of the tab, but agree on the need for a financing arrangement that draws in producers and households.
It is falling increasingly on financial markets to assess climate risks and communicate it to the real economy through price signals.
RBI is joining the conversation at a juncture when India's contribution to climate change and its proposed correctives become a key element of global action. It is in need of financing in the range of $2.5 tn over 2015-30 to fund self-imposed climate-mitigation targets.
