{"id":202226,"date":"2022-08-27T17:46:34","date_gmt":"2022-08-27T12:16:34","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=202226"},"modified":"2022-08-27T17:46:34","modified_gmt":"2022-08-27T12:16:34","slug":"inclusion-of-climate-change-in-policy-is-crucial-for-a-strong-economy","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/inclusion-of-climate-change-in-policy-is-crucial-for-a-strong-economy\/","title":{"rendered":"Inclusion of climate change in policy is crucial for a strong economy"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article \u201cInclusion of climate change in policy is crucial for a strong economy<\/strong>\u201d published in the Indian Express<\/strong> on 27th<\/sup> August 2022<\/strong>.<\/p>\n

Syllabus: <\/strong>GS 3 Indian Economy; Ecology and Environment<\/p>\n

Relevance: <\/strong>Monetary Policies dealing with the climate change issues<\/p>\n

News: <\/strong>In July 2022, the Reserve bank of India (RBI) released a discussion paper that covers the issue of climate risks and sustainable finance.<\/p>\n

About the RBI recent discussion paper<\/strong><\/h5>\n

The RBI\u2019s earlier research papers or report could not address the comprehensive risk assessment<\/strong>.<\/p>\n

Therefore, this paper seeks to understand preferred approaches<\/strong> to identification and disclosure of exposures to climate-related risks, transition risks, frameworks for management of risks and capacity building within the banking sector etc.<\/p>\n

The RBI wants to assess the preparedness of the system rather than indicate its own approach to what a central bank can do.<\/p>\n

What is the importance of the RBI\u2019s recent consultation paper?<\/strong><\/h5>\n

It shows the Reserve Bank\u2019s inclination<\/strong> to address emerging risk<\/strong>s from climate change<\/strong> and a full assessment of macro-risks<\/strong> that may arise from disinvestment from fossil fuel-based assets.<\/p>\n

Further, the discussion paper also indicates the RBI\u2019s understanding of the requirements of the regulatory changes<\/strong>.<\/p>\n

The paper allows the RBI to respond based on existing practices and a better understanding of the risk profiles of banks.<\/p>\n

What are the issues in the discussion paper?<\/strong><\/h5>\n

The scope of discussion in the paper remains limited and without a general narrative on the central bank\u2019s role.<\/p>\n

It does not detail the various instruments such as capital requirements<\/strong> for fossil fuel-based lending<\/strong> by banks or credit guidance<\/strong> that can be worked by a central bank to ensure the greening of the financial system.<\/p>\n

Why should the central banks acknowledge the climate change risks? <\/strong><\/h5>\n

(1) Exposure of assets to extreme weather events<\/strong> and loss of asset value<\/strong> due to a green transition are imminent risks to the financial system.<\/p>\n

(2) Inclusion of climate change in a central bank\u2019s policy response remains unaddressed. Climate change is a significant threat to financial stability and the central banks are \u201cfailing to do its job\u201d to address climate risk.<\/p>\n

(3) Central banks can guide the flow of finance by restricting the flow of credit to fossil fuel-dependent sectors.<\/p>\n

What are various measures related to the acknowledgement of climate change risks?<\/strong><\/h5>\n

Globally<\/strong><\/p>\n

(1) Some Central Banks have adopted a range of best practices<\/strong> and approaches<\/strong>. For example, (a) the Bank of Lebanon <\/strong>sets different reserve requirements for loans linked to energy savings, and (b) the People\u2019s Bank of China offers positive incentives to commercial banks for extending green credit,<\/p>\n

India <\/strong><\/p>\n

(1) The Reserve Bank of India has included renewable energy (RE) within priority sector lending.<\/p>\n

(2) In 2021, the RBI joined the Network for Greening Financial System<\/a> <\/strong>which promotes the exchange of best practices<\/strong> on green finance <\/strong>across the world.<\/p>\n

(3) In 2021, RBI issued research papers indicating a growing acknowledgement<\/strong> of risks to the financial system. The RBI has acknowledged that extreme weather events can elevate inflation.<\/p>\n

(4) In 2022, RBI estimated the direct and indirect exposure of Indian banks to green transition<\/strong> in India.<\/p>\n

What should be done?<\/strong><\/h5>\n

While the RBI, disclosures and risk assessment frameworks are a starting point. It remains to be seen what macro<\/strong> and micro-prudential regulations <\/strong>will be introduced by the Reserve Bank of India (RBI).<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article \u201cInclusion of climate change in policy is crucial for a strong economy\u201d published in the Indian Express on 27th August 2022. Syllabus: GS 3 Indian Economy; Ecology and Environment Relevance: Monetary Policies dealing with the climate change issues News: In July 2022, the Reserve bank of India… Continue reading Inclusion of climate change in policy is crucial for a strong economy<\/span><\/a><\/p>\n","protected":false},"author":10343,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10500],"class_list":["post-202226","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704816260},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/202226","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10343"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=202226"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/202226\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=202226"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=202226"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=202226"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}