Climate risks may impact biz segment consisting largely of MSMEs: DG Rao

RBI Deputy Governor M Rajeshwar Rao highlights that climate risks will impact MSMEs, unorganised sectors, and unlisted corporates, stressing the need for awareness and risk assessments

Given that climate change and climate risks are likely to largely impact micro, small and medium enterprises (MSMEs), unorganised sector and unlisted corporates, creating an awareness among these borrowers on climate change risks and obtaining the required information are important, said M Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI), during the Conference on Green Infrastructure Finance at the College of Agriculture Banking, Pune, on July 3.

 

The speech was published on the RBI website on Friday.

 

“Climate change risks directly impact the real economy, and the financial sector in turn gets impacted on account of its credit exposure to the real economy,” Rao said.

 

 

He added that for the financial sector to perform a comprehensive risk assessment, relevant information flow from the real economy, that is, corporate/institutional borrowers, in a timely manner is important.

 

Rao highlighted that as sustainable and green infrastructure technologies contribute to the reduction or avoidance of greenhouse gas (GHG) emission intensity, a critical consideration for financing entities is to address the risks of greenwashing.

 

“For a creditor to fund any project which is intended to achieve reductions in GHG emissions, there is a need to clearly understand how these projected reductions are being quantified,” he said.

 

He added that it would also require a robust and independent monitoring, reporting, and verification (MRV) function.

 

“Standardised processes and databases to inform and quantify such benefits would be necessary to increase the funding avenues for such infrastructure projects,” he said.

 

 

Additionally, he underscored that the transition to net-zero goes beyond finance, and requires knowledge, trust, and collective action. This is because the world nears a climate tipping point and coordinated leadership in finance is crucial to building sustainable infrastructure for future generations.

 

Financial professionals must align with national net-zero goals, innovate, and collaborate globally while acting locally, he felt.

 

He further said that in today’s world of climate volatility, resource constraints, and inequality, sustainable and green infrastructure is essential.

 

All infrastructure, whether power plants or buildings, must support, not hinder, the path to net-zero emissions, he added.