INDIA’S BIG MOVE: RBI TACKLES CLIMATE RISK IN FINANCE

AKHIL K
CMA Trainee

08-Aug-2025

Climate change is no longer solely an environmental concern—it now poses a significant financial threat. Severe weather events like floods, droughts, and heatwaves can damage infrastructure and disrupt livelihoods, increasing the likelihood of loan defaults. Simultaneously, as the economy shifts toward clean energy, businesses tied to fossil fuels or outdated technologies face transition risks from regulatory changes and evolving market preferences. Together, these risks can lead to deteriorating asset quality, loan losses, and even systemic instability in the banking sector.

The Reserve Bank of India has taken a landmark step in addressing climate-related financial risks by introducing a comprehensive disclosure framework in February 2024. This initiative marks India's commitment to integrating climate considerations into its financial regulatory structure, positioning the country alongside global leaders in sustainable finance. The framework mandates financial institutions to disclose their exposure to climate risks across four critical areas: governance, strategy, risk management, and metrics & targets.

To support these disclosures, RBI has launched the Climate Risk Information System (RB-CRIS).

This two-part data hub includes:

 a public directory listing weather and geography data sources, and

 a secure portal giving processed, standardized data to banks.

By centralizing climate information, RB-CRIS helps banks assess risk more reliably—even forecasting storms or drought impacts on borrowers.

But there are gaps. A recent study shows that only a few large banks currently report full emissions data, conduct climate stress tests, or set net-zero targets. This highlights an urgent need for more training and investment in tools to meet new rules.

The stakes go beyond finance. India’s exports (valued at around $825 billion in 2024–25) are under pressure from new taxes in the EU and UK called Carbon Border Adjustment Mechanisms (CBAM). More than two-thirds of these exports may face tariffs if emissions are not disclosed or reduced, making RBI’s framework crucial for maintaining export competitiveness

Banks must set up committees to manage climate risk, use RB-CRIS data for modelling, and start issuing clear disclosures. Investors and fintech firms should use these reports to find green investments and support India’s climate transition.

The RBI's climate risk framework marks a pivotal moment in India's journey toward its 2070 NetZero commitment. Through collaborative implementation between financial institutions, corporates, and regulators, this initiative will strengthen India's financial resilience while positioning the country as a sustainable finance leader. Beyond protecting domestic markets from climate disruptions, the framework ensures India's export competitiveness in an increasingly carbon-conscious global economy, ultimately supporting the nation's transition to a low-carbon future.

Quick Enquiry

First name*

Last name*

Company*

Your Location*

Email

Phone number*

Do you want to leave us a message?*

Submit

Thank you! Your message has been sent successfully

Error, please retry. Your message has not been sent