The Reserve Bank of India (RBI) on Tuesday said that the government will have to lead the way in creating appropriate taxonomy for enabling a sustainable green finance mechanism, as the classification of a low-carbon ecosystem will aid in tracking sustainable finance flows.
“Sustainable finance taxonomies are tools intended to help investors decipher whether an economic activity is environmentally sustainable, and to navigate the transition to a low-carbon economy. Such a taxonomy can play a key role in channelising and scaling up sustainable finance funds to India,” the RBI said in its Trend and Progress of Banking in India 2021-22 report.
The sovereign green bond framework was set up in November. As part of the initiative, the government had announced issuing of sovereign green bonds to the tune of `16,000 crore in the domestic market in FY23, which will be used for developing green public sector projects. The government is considering issuing these bonds in January-March, minister of state for finance Pankaj Chaudhary had informed Parliament.
The pricing of the government green bonds will serve as a benchmark for companies raising debt through such modes, M Rajeshwar Rao, deputy governor, RBI, had recently said at an event.
At the banks’ end, they need to develop processes for assessing the potential impact of climate-related financial risks in their business strategies and operations, the RBI said. They will be required to alter their governance structures, create frameworks and train their staff to effectively manage such risks.
“Climate change may result in both physical and transition risks that could have implications for sustainability and financial soundness of individual regulated entities (RE) as well as systemic financial stability,” the central bank said.
The RBI, in July, had issued a paper on climate risk and sustainable finance, directing banks to adopt to climate-related and environmental risks in their business strategies. The central bank had also suggested that the Indian Banks’ Association could set up a working group to that effect, or banks can also tie-up with institutions such as the International Finance Corporation.
