New Delhi, Feb 29 (KNN) The Reserve Bank of India (RBI) has stressed the necessity for lenders, also known as regulated entities (REs), to provide more comprehensive information regarding their climate-related financial risks.

This call comes as the central bank highlights the potential consequences of insufficient disclosure, such as mispricing of assets and misallocation of capital.

To address this need, the RBI has formulated a standardised Disclosure framework for REs concerning Climate-related Financial Risks. Under this framework outlined in the "Draft Disclosure framework on Climate-related Financial Risks, 2024," REs are required to divulge detailed information independently rather than on a consolidated basis.

According to the draft framework, REs must disclose information across four thematic areas or "Pillars": Governance, Strategy, Risk Management, and Metrics and Targets.

This directive applies to Scheduled Commercial Banks (SCBs), large urban cooperative banks (UCBs), all-India financial institutions (AIFIs), and large non-banking financial companies (NBFCs), excluding certain categories like Local Area Banks, Payments Banks, and Regional Rural Banks.

“Climate-related disclosures by REs is an important source of information for different stakeholders (e.g., customers, depositors, investors and regulators) to understand relevant risks faced and approach adopted to address such issues,” RBI said.

Additionally, RBI emphasises the inevitability of climate change's impact on REs, citing the growing threat of climate change, market perception shifts, and the transition towards environmentally sustainable practices.

Hence, it's crucial for REs to adopt robust climate-related financial risk management policies and processes to mitigate these risks effectively.

In adherence to the provided glide path for disclosures, SCBs, AIFIs, large NBFCs, and UCBs are mandated to commence disclosures on Governance, Strategy, and Risk Management from FY26 and FY27 onwards, respectively. Furthermore, disclosures on Metrics and Targets are to begin from FY28 and FY297 onwards for the respective entities.

As part of the enhanced disclosure requirements, REs are obligated to reveal absolute gross greenhouse gas emissions and financed emissions for each industry by asset class. They must also disclose climate-related physical and transition risks, including the percentage of assets vulnerable to these risks.

Lastly, lenders are instructed to disclose how climate-related considerations factor into the remuneration of key personnel such as Whole Time Directors, Chief Executive Officers, and Material Risk Takers.

(KNN Bureau)