Reserve Bank of India (RBI) Deputy Governor Shri M. Rajeshwar Rao is calling for global cooperation in managing climate risks and promoting sustainable finance at an IMF panel discussion, urging central banks to take proactive measures. Rao addressed a panel discussion on Climate Implications for Central Banking, organized by the IMF and Center for Social and Economic Forum in New Delhi July 19, according to a July 25 RBI news release.
"Global understanding of systemic impact of climate change on the economy and the financial system is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing," Rao said in the release.
Rao highlighted the urgent need to address climate change, which he said was "no longer a distant threat," but a pressing reality affecting lives and livelihoods. Rao emphasized central banks' role in managing climate change's outcomes, as it poses a risk to long-term growth, monetary stability, financial stability and the safety of regulated entities, the release reported.
"We need to undertake a large-scale capacity building effort to equip central banks, financial firms, real economy players to understand, assess and plan for the climate issues and related financial risks," Rao added, according to the release. "Only then would they be able to innovate, make strategic decisions, mobilise capital and build effective transition plans for achieving sustainability targets."
He pointed out two significant channels through which climate risks impact economies – physical risks such as extreme weather events and transition risks related to moving to a low-carbon economy, the release said. Extreme weather events can disrupt production and supply chains and lead to inflationary pressures. Additionally, banks and financial institutions could face losses due to climate events or the devaluation of climate-sensitive assets, the release said.
Rao stressed the importance of measuring exposure to climate risks and promoting transparency in disclosing the carbon intensity of operations. Central banks are encouraged to incorporate climate-related risks into their supervisory frameworks and support green finance initiatives, the release reported.
He mentioned the RBI's efforts in promoting green finance, including the inclusion of renewable energy projects in the priority sector lending portfolio and issuing sovereign green bonds, according to the release.
He highlighted the need for global cooperation in tackling climate change, as the consequences affect everyone, with middle and lower-income countries bearing a disproportionate share of the costs. Climate finance commitments from advanced economies need to be implemented effectively to address the financing gap for climate initiatives, the release said.
Rao concluded by emphasizing the importance of sustained, planned and coordinated efforts to tackle climate change, acknowledging that dealing with the issue will be a long-term endeavor for all, the release reported.