Climate Risk Puts Over ₹ 6 Lakh Crore At Risk At India’s Top Banks

: Climate is the biggest risk to businesses in the long run.

Highlights:

  • More than ₹ 6 lakh crore at risk in Indian top banks
  • Reports from CDP says Financial institutions are beginning to understand the risk of extreme weather
  • State Bank of India, HDFC Bank, IndusInd Bank Ltd. and Axis Bank Ltd. are among some Indian banks which reported climate risks

The increase in extreme climate conditions over the period of time which includes floods, droughts and cyclones has surged the risk of souring debt which is worth more than ₹ 6.19 lakh crore or ₹ 84 billion at some of India’s biggest financial institutions.

The report from the leading not for profit environmental disclosure platform CDP. State Bank of India which is India’s largest lender along with HDFC Bank, IndusInd Bank Ltd. and Axis Bank Ltd. are among the institutions which have reported climate risks to CDP in 2020, it said in its annual report which was released on Wednesday.

These Indian banks flagged exposure to environmentally sensitive businesses which includes cement, coal, oil and power. These banks also listed the effects of cyclones and floods on loan repayments in farming and other related sectors.

Lenders accounted for 87% of the total risk which is valued at about $97 billion, across 67 top Indian companies which responded to CDP.

New Delhi-based Director of CDP India, Damandeep Singh said, “Climate is the biggest risk to businesses in the long run. Financial institutions are beginning to understand it,” and added that “As investors look at funding companies based on environmental, social and governance disclosures, we’ve seen many more companies report climate change risk.”

Also Read: Global Carbon Emission On A Rise in 2021 After A Drop Of 5.8% In 2020 Says IEA

The potential hard posed to the agricultural sector in the country echoes concerns raised by India’s central bank about the impact of climate change on farming, a sector that employs more than half of its citizens. At the same time, India, which is the world’s third-biggest emitter of the greenhouse gases is relying on coal to help drive its post-COVID recovery.

The dirtiest fossil fuel could remain its dominant energy source in the coming decades.

CDP, a not for profit Charity, gathered the data on behalf of 515 investors with $ 106 trillion in assets, said it received responses from close to 220 small and large Indian companies.

State Bank of India, which is facing concerns from its shareholders and investors over its proposal to help fund the controversial Carmichael coal mine in northern Australia, valued its total climate risk at ₹ 3.83 lakh crore. The bank said it may “indirectly face reputational risks, should it be involved in lending to environmentally sensitive projects which may have significant public opposition.”

SBI didn’t respond to a request from CDP seeking comment.

HDFC Bank flagged the second-highest risk amongst the financial institutions that replied to CDP in India and estimated that it had around ₹ 1.79 lakh crore of assets in danger – a rise of 24% from 2019.

The bank said that the risk amount came per its calculations which took into account the compensation it would have to pay to employees in case of flooding and its exposure to farming, cement, coal, oil and power.

Other private banks such as IndusInd, Axis and Yes reported lowered climate change risk compared to last year at ₹ 46.6 thousand crore, ₹ 7.5 thousand crore and ₹ 2 thousand crore respectively, citing more diversified portfolios.

As per a report from Mint, “India was second in the Asia Pacific and sixth globally among CDP’s ranking of countries whose companies committed to science-based targets for net-zero carbon emissions, the report showed.

“More than 50 Indian companies said they are preparing for future policy and regulatory changes by voluntarily committing to cutting their carbon footprint.”

The report from CDP said, “Increased investor pressure and stronger disclosure norms are compelling Indian companies to address climate concerns”.

Almost all the companies reported board-level oversight of climate-related issues, while 84% said that the climate-related risks and opportunities led them to alter plans for products and services.

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