Banks and large financial companies will have to disclose their governance, strategy and risk management structures to manage climate change risks by FY26, according to RBI.
The draft disclosure framework for climate-related financial risks was published by the central bank on Wednesday. The framework includes definitions for key terms related to climate-related financial risks and is applicable to a variety of financial institutions, including scheduled commercial banks, urban cooperative banks, financial institutions and non-bank financial companies.
Foreign banks operating in India are also required to make specific disclosures related to their operations in a country. While larger banks listed in the document are mandated to adopt the guidelines, others have the option to adopt them voluntarily. Regulated entities must disclose management information, including structure overseeing climate issues, responsibilities outlined in policies, competency development, communication processes and management control.
They are also required to disclose climate-related information pertaining to their strategy, including issues affecting perspectives, short, medium, and long-term, specific challenges, and the impact on the business model.
Risk management disclosures include an assessment of climate-related financial risks, including credit, market, liquidity and operational risks. This encompasses methodologies to assess the impact of climate-related risk drivers on credit risk management systems, market risk positions, liquidity risk profiles, and operational risk.
Starting in FY28, regulated entities must disclose goals for mitigating and adapting to climate-related financial risks, along with metrics used to measure progress. This includes the purpose of the goal, the metric used to set it, the related period and base period, any milestones or interim goals, and third-party validation if applicable.