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Climate risks may impact biz segment consisting largely of MSMEs: DG Rao
Given that climate change and climate risks are likely to impact a business segment consisting largely of MSMEs, unorganised sectors, and unlisted corporates, creating awareness and understanding among these borrowers on climate change risks and obtaining the required information becomes important, said M Rajeshwar Rao, Deputy Governor, Reserve Bank of India, on July 3 at the Conference on Green Infrastructure Finance at the College of Agriculture Banking, RBI, Pune.
The speech was published on the RBI website on Friday.
'Climate change risks directly impact the real economy, and the financial sector, in turn, gets impacted on account of its credit exposure to the real economy,' Rao said, adding that for the financial sector to perform a comprehensive risk assessment, relevant information flow from the real economy, i.e., corporate/institutional borrowers, in a timely manner is important.
Rao highlighted that as sustainable and green infrastructure technologies contribute to the reduction or avoidance of greenhouse gas (GHG) emission intensity, a critical consideration for financing entities is to address the risks of greenwashing.
'For a creditor to fund any project intended to achieve reductions in GHG emissions, there is a need to clearly understand how these projected reductions are being quantified,' he said, adding that it would also require a robust and independent Monitoring, Reporting, and Verification (MRV) function.
'Standardised processes and databases to inform and quantify such benefits would be necessary to increase the funding avenues for such infrastructure projects,' he said.
Financial professionals must align with national net-zero goals, innovate, and collaborate globally while acting locally.
He further said that in today's world of climate volatility, resource constraints, and inequality, sustainable and green infrastructure is essential. All infrastructure, whether power plants or buildings, must support, not hinder, the path to net-zero emissions.
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