New Delhi, Feb 1 (IANS): Asserting that India is actively contributing to global efforts towards green finance, the Economic Survey 2021-22 said that the Reserve Bank of India (RBI) has joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS) as a member.

Climate change-related financial risks pose both micro and macro prudential concerns. The RBI is preparing a consultative discussion paper to assess the progress of its regulated entities in managing climate risk, inter alia, governance, strategy, risk management, and disclosure. The discussion paper will sensitise regulated entities to incorporate climate-related and environmental risks in their business strategies, governance and risk management frameworks, the Survey, tabled in Parliament on Monday, said.

The RBI joined NGFS as a member on April 23, 2021 and has begun participating in the work streams. In January 2021, a Task Force on Sustainable Finance had been set up by the Department of Economic Affairs, under the Finance Ministry, with terms of reference including defining the framework for sustainable finance in India, establishing the pillars for a sustainable finance roadmap, suggesting draft taxonomy of sustainable activities and a framework of risk assessment by the financial sector, it said.

In May 2021, the RBI set up a new unit- 'Sustainable Finance Group' (SFG) within its Department of Regulation to effectively counter these risks, and for leading the regulatory initiatives in the areas of sustainable finance and climate risk. The SFG is coordinating with and participating in issues relating to sustainable finance or climate risk, with the international standard setting/co-operation bodies, other central banks, other financial sector regulators and the government.

The group would also be instrumental in suggesting strategies and evolving a regulatory framework, including appropriate climate related disclosures, which could be prescribed for banks and other regulated entities to propagate sustainable practices and mitigate climate-related risks in the Indian context, the Survey said.

In line with the international best practices, banks will be guided to adopt a forward-looking, comprehensive, and strategic approach to climate-related risks, it said.

On November 3, 2021, the RBI published a 'Statement of Commitment to Support Greening India's Financial System - NGFS' and committed to exploring how climate scenario exercises can be used to identify vulnerabilities in RBI-supervised entities' balance sheets, business models and gaps in their capabilities for measuring and managing climate-related financial risks.

This would also help in integrating climate-related risks into financial stability monitoring and building awareness about climate-related risks among regulated financial institutions and spreading knowledge about issues relating to climate change and methods to deal with them accordingly, the Survey said.