~Samriddhi Singh Mahar
RBI Governor Shaktikanta Das proposed the creation of RB-CRIS, a climate risk data repository, to bridge gaps in high-quality climate-related data and support robust risk assessment for regulated entities, aiding compliance with RBI’s climate-related financial risk disclosure framework.
“Climate change is emerging as a significant risk to the financial system world over. This makes it necessary for regulated entities to undertake robust climate risk assessment, which is sometimes hindered by gaps in high-quality climate-related data. To bridge these data gaps, the Reserve Bank proposes to create a data repository, the Reserve Bank – Climate Risk Information System (RB-CRIS),” Governor Das said in his latest monetary policy statement.
ETBFSI gives its readers a detailed explainer on RB-CRIS, the impact it will have on banks along with a background of climate related financial risks and its impact on financial institutions.
What are Climate Related Financial Risks?
According to the draft disclosure released by RBI, climate related risks are described as “the potential risks that may arise from climate change or from efforts to mitigate climate change, their related impacts and economic and financial consequences.”
How big are these risks? How can it impact financial institutions?
India ranks among the top ten most climate-vulnerable countries, placing seventh in the 2021 Global Climate Risk Index (CRI).
Assessments, stress tests, scenario analyses, case studies etc allow all dedicated stakeholders such as investors, depositors, creditors, private and public institutions the ability to adapt to physical and transitional changes caused by climate.
With these facts in mind it is necessary for financial institutions to increase their capacity for climate resilience.
What is RB CRIS?
The RBI governor said that it is crucial for regulated entities to undertake climate risk assessments for ensuring stability of their balance sheets and that of the financial system. Such an assessment requires, among other things, high quality data relating to local climate scenarios, climate forecasts, and emissions, which is why the RBI proposed to create a data repository namely, the Reserve Bank Climate Risk Information System (RB-CRIS).
What are the guidelines in place to combat climate risks?
Currently there are no guidelines placed by the RBI to specifically combat climate related risks, however a draft framework was developed and released in the month of February that outlines how banks and financial institutions will be mandated to disclose their climate-related financial risks, focusing on four main areas:
- Governance: Disclose how the board and management oversee and manage climate risks.
- Strategy: Show how the institution plans to address climate risks and opportunities in the short, medium, and long term, including stress tests and scenario analysis.
- Risk Management: Explain how climate risks are identified, evaluated, and incorporated into overall risk management systems.
- Metrics and Targets: Share performance data on climate risks, including key risk indicators, set targets, and progress towards them.
What kinds of impact RB-CRIS will have on banks?
According to the statement by the governor, all regulated entities will have access to the data and information.
Regulated entities include entities such as Scheduled Commercial Banks, Tier-IV Primary (Urban) Co-operative Banks (UCBs), All-India Financial Institutions (such as EXIM Bank, NABARD, NaBFID, NHB, and SIDBI), as well as Non-Banking Financial Companies (NBFCs)
The depository will allow the creation of a body of knowledge that can be used to facilitate actionable policies for risk mitigation of climate related financial instability.
