RBI's Climate Risk Disclosure Framework: A Comprehensive Approach To Financial Risk Management

Introduction

One of the most significant regulatory developments in India's financial sector is the Reserve Bank of India's ("RBI") 'Draft Disclosure framework on Climate-related Financial Risks, 2024',¹ announced on February 28, 2024. This framework emanates from the fact that climate-related risks are becoming increasingly material and have potential implications for financial stability. The framework admits that a lack of adequate information about climate-related financial risks can lead to asset mispricing and capital misallocation, thus requiring a standardised disclosure approach.

Regulatory Scope and Coverage

The framework encompasses a list of Regulated Entities ("REs"): Scheduled Commercial Banks (except Local Area Banks, Payments Banks and Regional Rural Banks), Tier-IV Primary Urban Co-operative Banks, All-India Financial Institutions comprising EXIM Bank, NABARD, NaBFID, NHB and SIDBI and Top and Upper Layer Non-Banking Financial Companies.