India’s big banks are woefully unprepared to face risks related to climate change even though weather events have been posing serious threats to human life and triggering financial losses, pointed out a new report by Bangalore-based think-tank Climate Risk Horizons.
In 2022, extreme weather events battered India on 314 out of 365 days, claiming 3,026 human lives and affecting at least 1.96 million hectares of crop area.
The report — “Still Unprepared” — came to the conclusion that Indian banks are not prepared to face such disasters after assessing the progress made by 34 major Indian banks in climate preparedness.
At a time when climate risk is being ranked as the second most dangerous risk to the global economy by World Economic Forum's Global Risk Report, major banks in India have turned a blind eye to international guidelines and policies meant to improve their preparedness and resilience against climatic changes.
The report found that Suryoday Small Finance Bank and Federal Bank of India are the only banks in India that have a policy against financing fossil fuel projects.
Out of the 34 major banks assessed for the report, FBI remains to be the only bank that has an exclusionary policy against financing expanding coal mines and other oil and gas exploration activities.
“No other bank has initiated or voiced a consideration over instituting such a policy,” the report says.
Among the top 34 banks in India, only eight are included in international associations for climate initiatives, like UN Principles for Responsible Banking, Carbon Disclosure Project (CDP) etc. when there has been a significant increase in the membership of such organizations from the Asia-Pacific region.
Yes bank remains to be the only signatory from India to UN Principles for Responsible Banking, the report noted.
A similar lacuna was found in the area of emission accounting and disclosures.
Only eight banks in India disclose their emissions at a detailed level, such as direct emissions, and those happening at the level of their business value chain.
Apart from this, two major banks — AU Small Finance Bank and FBI — have also started reporting their non-direct emissions since FY 2021-22.
“This implies that close to 70% of the banks are still not disclosing/calculating their emissions.”, says the report. Typically, under the prevalent three-scope system of disclosure, organizations have to calculate and disclose even indirect emissions such as those related to employee-travel related expenses, electricity consumption and paper consumption.
While target setting to reduce emissions has gained considerable momentum globally, Indian banks still remain nascent in their efforts to contribute to the trend, the report said.
None of the Indian banks have set a net zero target which covers the scope emissions even though India had presented a plan to stop emissions by 2070 at the UN Climate Change Conference in Glasgow (COP26).
The report, however, adds that four banks — HDFC, SBI, IndusInd Bank and YES Bank — have set a target to achieve carbon neutrality by 2030. However, while SBI does not specify any details regarding its target, the other three bank targets cover only scope 1 (direct) and 2 (energy supplier) emissions.
On a positive note, the report cites an increase in the number of third party verifications undertaken for emission disclosure. But it also noted that only five out of the eight banks that report on their emission have published the verification.
Another important revelation by the report is regarding the financed emissions of Indian banks.
Financed emissions, which can constitute as much as 95% of a bank’s total carbon footprint, is significant in terms of emission disclosure given that most of the Indian banks cite the financial nature of their services as a reason for non-disclosure.
The think tank points out that Yes Bank is the only Indian bank that has measured its financed emissions in the last few years which remains limited to its electricity generation portfolio.
Green Finance
In another surprising finding, the report found that 44% of Indian banks have no plans to contribute to the country’s new ambitious renewable energy sector.
Only 29% of the major 34 banks have disclosed their green finance details. Another 26 % claims to be funding green activities without providing details about the amount disbursed.
Similarly, more than 50% of the major banks in India do not have a proper exclusion policy towards fossil fuels.
At the COP26, India among other countries had vowed for a redirection of public finance from fossil fuels to clean energy sources.
But according to the report, only two Indian banks namely Suryoday and Federal bank of India have active coal exclusion policies.
Five other banks which have published their policies do not take a stance on fossil fuel lending while nine banks mention exclusion of industries producing ozone depleting substances.
Risk Management
In addition to their lacunae in making disclosures, the report also found most banks to be lacking when it came to planning for dealing with the outcome of natural disasters and climate change.
“Climate scenario analysis as a tool is still in its infancy,” the report noted, adding that none of the major banks in India have even calculated the impact different climate scenarios can have on their portfolio.
However some banks including Yes Bank, Kotak Mahindra Bank and RBL Bank’s among others have begun the process of considering different scenarios for the calibration of risks.
The analysis also reveals that only 10 of the major banks in India have a proper, dedicated climate risk management committee at the board level. These committees have strategic plans to combat climate related risks.
| TOP PERFORMERS IN PREPAREDNESS | |
| SCORE | |
| YES BANK | 15 |
| HDFC BANK LTD | 13 |
| AXIS BANK LTD | 13 |
| STATE BANK OF INDIA | 12 |
| KOTAK MAHINDRA BANK LTD. | 12 |
| INDUSIND BANK LTD | 12 |
| FEDERAL BANK | 11 |
| RBL BANK | 10 |