Recently, an article by Wharton titled as ‘Why central banks are talking on
climate change’ , caught my attention. It nicely summed up the reasons for
central banks to sit up and notice the imminent impact of climate change for the
finance industry.
Network for greening the financial system (NGFS), which is relatively
new but supposedly very powerful and crucial organization is going to play increasing
pivotal role for the finance industry and climate change. NGFS is a forum
created for central banks and financial supervisors to understand and assess the
financial risk and also the opportunities emerging from climate change. NGFS consists of 36 members as of now including central
banks and financial supervisors. Unsurprisingly, Reserve bank of
India is not part of NGFS (however IDBI bank & Yes bank are mentioned as a
part of supporting institutions), while People's Bank of China is part of the steering
committee. One of the primary goals of NGFS
is carbon risk management. My concept paper(published in 2017) titled as 'Carbon Risk and Impact Assessment from the Perspective of an Institutional
Investor' which deliberates on the identification
of key non-physical carbon risk factors and impact assessment on financial
performance drivers of the firm, fits right away into the goal of NGFS.
Why RBI
should join NGFS?
Sooner the RBI joins the NGFS, better it is for the Indian
financial ecosystem.
Joining NGFS reaps following benefits to us;
1. Not being part of such initiative especially when India is a signatory to Paris
agreement only
shows lack of focus from financial initiative perspective.
2. Whatever contribution from Indian finance sector will be by
joining NGFS will go long way in building the 'Finance India' image especially when
China is being so proactive. (as being part of the steering committee of
NGFS)
3. Joining NGFS may also give us a chance to look into where the
world finance think tank is leading in terms of financial regulations &
disclosures, upcoming trends in interaction of financial sector and climate
change and so on. This shall certainly give chance to smooth transition for
Indian financial sector to future changes otherwise, it will be very chaotic to
all the stakeholders to make a sudden shift to new regulatory or other changes.
Carbon tax, carbon emission disclosure in annual report, carbon
footprint exposure by various institutional investors like; mutual funds,
insurance companies, banks, AMCs, etc. may become part of regulatory changes as
many countries have started implementing these norms.
Indian financial regulatory bodies can afford to be laggards at
their own peril and the cost will be paid by all the stakeholders of Indian
financial ecosystem!
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