SDG 9: Industry, Innovation & Infrastructure | SDG 13: Climate Action
Institutions: Reserve Bank of India | Ministry of Finance
A new policy brief by the Asian Development Bank Institute (ADBI) urges banks to move beyond awareness of climate risks and embed adaptation and resilience into core banking practices. The report highlights the growing vulnerability of financial portfolios to climate impacts, particularly in infrastructure, agriculture, and real estate.
Key recommendations include integrating climate risk screening, stress testing of portfolios, adaptation-linked lending instruments, and mandatory disclosure/reporting frameworks. The brief emphasises that regulatory guidance and capacity building are essential to help banks operationalise these measures.
For India, where sectors financed by banks are highly climate-exposed, this framework could align banking with the National Adaptation Plan, the RBI’s climate risk agenda, and the global shift towards sustainable finance. Embedding resilience in lending practices would not only safeguard financial stability but also accelerate investment in climate-proof infrastructure and agriculture.
What is Climate Risk Screening? → A process where banks assess whether projects or assets they finance are exposed to climate risks such as floods, droughts, or heatwaves. It helps flag vulnerabilities early, so that mitigation or adaptation measures (like flood-proof design or drought-resistant crops) can be built into lending decisions.
What is Stress Testing of Portfolios? → Stress testing simulates how a bank’s portfolio would perform under extreme but plausible climate scenarios (e.g. repeated floods, rising sea levels, long droughts). It shows potential defaults, losses, or liquidity issues, helping banks prepare and regulators safeguard systemic stability.
What are Adaptation-Linked Lending Instruments? → These are financial products (loans, bonds, guarantees) structured to encourage investments that make systems more climate-resilient — for example, lower interest rates for climate-proof housing or credit guarantees for farmers adopting resilient practices. They reward borrowers for integrating adaptation measures.
What is a Mandatory Disclosure / Reporting Framework? → A regulatory requirement for banks and companies to publicly disclose their exposure to climate risks and the steps taken to manage them. Standardised reporting (often aligned with frameworks like TCFD — Task Force on Climate-related Financial Disclosures) allows investors, regulators, and the public to track how resilient institutions really are.
What is RBI’s Climate Risk Agenda? → The Reserve Bank of India (RBI) has begun integrating climate risks into financial supervision and policy. Its agenda includes requiring banks and NBFCs to identify, monitor, and disclose exposure to climate-related risks (both physical risks like floods and transition risks from policy/technology shifts). RBI is also aligning with the Network for Greening the Financial System (NGFS) to build India’s regulatory roadmap.
Follow the full brief here: ADBI Policy Brief
https://doi.org/10.56506/PWVQ8458