Yes Bank emerged as leader in climate-risk preparedness; State Bank of India most exposed to coal sector
State Bank of India and HDFC Bank have the highest exposure to carbon-intensive sectors, according disclosures of India’s 30 largest banks. Photo: iStock Extreme weather events impacted India on 314 of 365 days in 2022. Yet, major Indian banks have been unprepared to confront climate risks, according to a new analysis prepared by Bengaluru-based think tank Climate Risk Horizons.
The report, Still Unprepared, is based on assessment of the year 2022, and finds that despite the accelerating impacts of climate change, significant gaps remain in the preparedness of the Indian banking sector to measure, manage and mitigate climate risks.
The analysis has assessed the climate-preparedness among India’s 34 largest banks that have a combined market cap of Rs 29.5 trillion.
“In 2022, extreme weather events battered India on 314 out of 365 days. These floods, heatwaves and other extremes are exacting a financial toll, and science tells that things will get worse. This is not just an ecological issue. It has real financial consequences for the Indian economy and for investors,” said Sagar Asapur, head, Sustainable Finance for Climate Risk Horizons and one of the authors of the report.
In 2021, a report by human rights organisation Germanwatch showed that India was the global topper in terms of financial losses from climate change; and the rank has become ‘second’ after China if cumulative financial losses linked to climate change are considered from 2000-19.
“It is a fact that banks, both nationalised and private, are still to have a clear policy and implementation plan vis-a-vis funding climate areas,” admitted a Kolkata-based senior bank official in Kolkata, requesting anonymity.
The recent analysis has been made based on several criteria including a fossil fuel exclusion policy, emissions disclosure, climate scenario analysis and Net Zero Targets.
The analysis shows that Yes Bank, HDFC Bank, and Axis Bank have emerged as the top three performers in climate-risk preparedness. Also, eight banks have started disclosing emissions that are an indirect result of the bank’s activities since the earlier assessment carried out in early 2022.
Yes Bank remains the only bank to measure its financed emissions. But that is limited to the electricity sector.
At a time when climate disruption in the form of extreme weather events has hit new extremes, not a single bank has yet undertaken climate-related scenario analyses.
The report also finds that public banks in particular are failing to adequately finance India’s energy transition despite it being the cornerstone of India’s climate policy.
For example, the study finds that public sector banks have accounted for less than eight per cent of total financing for the renewable energy sector (while) only 10 banks have disclosed their green financing activities.
The trend seems to be in conflict with the position of Reserve Bank of India (RBI) that the climate crisis could pose a systemic risk to the Indian economy.
The analysis maps the potential climate change risks faced by India’s banking sector based on sector-wise exposure, and emphasises the need for mandatory guidelines from the RBI on climate-related disclosures and common frameworks to manage climate risks.
State Bank of India (SBI) and HDFC Bank have the highest exposure to carbon-intensive sectors, with SBI’s exposure dominated by coal, according to disclosures of India’s 30 largest banks.
“It has been more than a year since the RBI released a draft discussion paper on climate risk and sustainable finance for public comment. However, nothing has been finalised yet,” pointed out an expert.
The study lists proactive disclosure of green finances, adoption of a common reporting format, transition plans for their fossil fuel financing and the use of tools like climate scenario analyses as urgent steps required to be taken by banks to counter climate risks.
“Banks and financial institutions in India hardly finance climate adaptation projects, because short-term returns on investment (RoI) are not perceived by them. Moreover, they lack instruments to protect, insure or otherwise, the climate risks of loans and investments provided by them,” Nilanjan Ghosh, director of think tank ORF Kolkata and president of Indian Society for Ecological Economists told this reporter.
“Both transitional risk, vis-a-vis switching over to climate friendly processes, and climate impact risk are there; which eventually gets percolated to banking and financial systems. It is a fact that Indian banks are still under-prepared to tackle the situation but we also must consider that such a process got globally initiated at a wider scale less than a decade ago, and then Covid happened. However, it is high time that Indian banks and financial institutions get activated on the agenda,” said Vaibhav Chaturvedi, a fellow at the Council on Energy, Environment and Water.
“It is high time that banks start to work in tandem with the overall climate policies of the country; and support climate projects as well as support the losses and damages incurred due to climate change triggered weather events,” said another expert.
An expert, working in the climate-vulnerable Sundarbans delta of West Bengal, pointed out that the island area, battered by a series of climate-triggered cyclones and other extreme weather events since 2019, hardly received any significant support from the banking sector.
“We had three back-to-back cyclones in the Sundarbans — Bulbul, Amphan and Yaas — triggering an estimated cumulative economic loss of Rs 1.5 lakh crore. The amount will increase if you consider the smaller cyclones during the period. But hardly any support came from the banks,” said a senior official of the West Bengal disaster management department alleging that the banks do not have any structured fiscal policy on climatic issues.
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