Parekh wants financial sector to do a credit bureau encore on climate risks

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Noted banker Deepak Parekh has underlined the need for the financial sector to come together to take the lead to create a data bank on green loans in the way they created credit bureaus more than two decades back.

Admitting that there is a severe lack of quality data on the emission risks/climate risks, Parekh, who is also the chairman of the nation's largest pure-play mortgage lender HDFC, said, Hiding lack of data is not an excuse because the key point is that we have got to start somewhere and we are at an inflexion point on climate risk."

"There is no reason why our financial system cannot collaborate together on climate risk and measuring financed emissions.

"We've set up many repositories in the past, and we have the technology to support easily available and I am sure some of our larger financial institutions can take the lead to work together to have a single platform wherein they can use common data to determine climate risks and begin to measure their financed emissions, Parekh told the World Congress of Accountants, hosted by the Institute of Chartered Accountants of India, here on Monday.

He said the financial sector can take a leaf or two from how we set up the first credit bureau 22 years ago as a joint initiative between State Bank of India, HDFC, Dun & Bradstreet and Transunion.

At that time, there was a mindset, should financial institutions be sharing information on their customers especially among the public sector banks which were not even computerized fully. This is history now. Today, not a single loan is given out without using data from the credit bureau.

Admitting that even globally, much of carbon accounting methodologies are still evolving, he said there is also a chasm on climate risks wherein the environmental scientists don't understand finance well enough and finance professionals don't completely understand the environmental science.

But it is a gap that needs to be bridged. I have heard many lamenting lack of climate and emissions data is the biggest hindrance. But hiding lack of data is not an excuse because the key point is that we have got to start somewhere and we are at an inflexion point on climate risk, Parekh said.

According to him, such a joint effort can go a long way for the financial system to create a verifiable record of green loans because it's easier and more economical to collaborate together on sustainability initiatives. Over time, green loans could entail lower risk weights, be considered as priority sector loans or have differential pricing.

He further said if our financial institutions do this along with the support of regulators, then the country will be able to steal a march, demonstrate its commitment to tackle climate change and more importantly be able to attract long-term investments which are needed for infrastructure.

The point is that we need to work together to find common sustainable solutions that work for the country, he said.

Noting that sustainability is going to be strongly embedded in every sphere of activity, Parekh said CAs as accountants, auditors and assurance providers can go a long in judging, assessing and measuring your clients' carbon footprint, carbon offsets, financed emissions and also assess if sufficient buffers have been made to factor physical and transition risks due to climate change.

This is a new area for many but it is the path forward, Parekh underlined.