Mumbai, Mar 13 (UNI) Noting that climate related changes will have significant impact on real economy, day-to-day lives and financial systems, the Reserve Bank of India on Thursday said it is important for the central banks to promote “Green Finance” enabling banks to augment the flow of credit to green activities and projects.

“I would like to highlight an important initiative to promote green finance. We have included finance to small renewable energy projects – solar, biomass based, windmills, micro-hydel plants and non-conventional energy based public utilities viz. street lighting systems, and remote village electrification projects as part of priority sector lending,” Sanjay Malhotra, Governor, RBI, said at the Policy Seminar on Climate Change Risks and Finance.

The impact of climate change risks is not limited to the financial system alone but extends to the real economy. Be it the corporates or the MSMEs or the agricultural sector, climate change risks are ubiquitous. This calls for a cohesive co-ordination and harmonisation in approach, among not only the financial sector regulators and the Regulated Entities but also various government agencies.

“There is a need to adopt a holistic approach towards mitigation of climate change risks considering the country specific requirements and circumstances. We will collaborate and coordinate with the government and other regulators to ensure that there is harmonisation and consistency in rules, regulations and our approach towards mitigating the impacts of climate change,” the Governor said.

Climate related changes are perceptible, clear, and visible, Malhotra said adding they are “intensifying and threatening” ecosystems, livelihoods, and economies. It is our individual and collective responsibility, to work together effectively and contribute to the global efforts to mitigate the risks associated with climate change and ensure that the Indian financial system remains resilient.

While the role of the Central Banks in managing risks posed by climate change to the financial system is increasingly being recognised, their role in facilitating the financing of green and sustainable transition has been a matter of debate and has varying dimensions to it.

Central Banks in Advanced Economies have traditionally followed an asset neutral approach. Central Banks in Emerging Markets and Developing Economies (EMDEs), on the other hand, have adopted directed lending policies to channelise credit to certain sectors of their economies given their individual country circumstances and developmental objectives.

In the Indian context, as you are all aware, the priority sector lending guidelines facilitate credit to be channelled to specific sectors including renewable energy, he said.

Reiterating that climate change risks are real and all stakeholders need to be prepared to address the risks and challenges from climate change.

“Even though we have made a decent start, there are still issues that need to be addressed. The Reserve Bank remains committed to continue adopting a constructive and consultative approach towards supporting the various initiatives being undertaken towards management and mitigation of financial risks related to climate change. We will continue to work steadfastly to realise our vision to build a financial system that cannot only withstand future climate shocks, but also actively contribute to India’s journey towards a sustainable and resilient future,” the RBI Governor added.

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