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India banks need to account for climate risk with $84B at stake, warns nonprofit

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India banks need to account for climate risk with $84B at stake, warns nonprofit

Indian banks can't put a hard stop to carbon financing, but need to plan for the transition, CDP says.

➤More Indian banks are quantifying the risks to their businesses from climate change.

➤Post-COVID recovery is an opportunity to reset climate goals in India.

Global sustainability disclosure platform CDP says Indian banks and policymakers need to plan for the country's move away from its reliance on carbon and the recovery from the COVID-19 pandemic offers an opportunity for a reset.

The CDP has been lobbying banks to measure and disclose the risk climate change may pose to their portfolio. Based on the information provided by the some of the biggest lenders, including the State Bank of India and HDFC Bank Ltd., CDP found that 6.19 trillion rupees, nearly $84.4 billion, of debt at India's leading financial institutions was at risk from extreme weather events such as droughts, floods and cyclones.

SNL Image

CDP India Director Damandeep Singh

Source: CDP

The government and several companies have taken steps to commit themselves to science-based greenhouse gas emission targets required to limit global temperature increase to 1.5ºC-2ºC compared with pre-industrial temperature levels. India now leads emerging economies for having the maximum number of companies committed to such targets and is at the sixth position globally. The number of companies committing themselves to these targets rose 37% to 52 in 2020, the nonprofit organization said in a report published on March 3.

Still, India's current efforts are insufficient to achieve the long-term climate goal of limiting temperature increase below 1.5°C in line with the Paris Agreement of 2015. It is the only major global economy that is yet to announce a target for net-zero emissions after China last year announced its plan to go carbon neutral by 2060. India needs a target soon, so that it can start putting in the systems that will help achieve that goal, CDP India Director Damandeep Singh tells S&P Global Market Intelligence in an interview.

This is an edited transcript of the interview.

S&P Global Market Intelligence: What are you advising Indian financial institutions about funding polluting industries?

Damandeep Singh: Our role is to tell the banks that rather than looking at their footprint, they should also be looking at their portfolio [and] what impact they have. Many Indian banks are looking at their portfolio now in terms of climate risk, and putting a money value to it. For example, State Bank of India did it for the first time in 2020. Our attempt is to help them understand it. Once you understand it and put a figure, then you can plan for it and see how you can mitigate that risk.

As a country that will continue to use coal-based power for many more years, how can the banks avoid funding such projects?

You can't do a hard, sudden stop for India, but Indian banks need to plan for a transition for cleaner future even though they may be locked in to funding coal projects for near term. That's because the government is still trying to do coal auctions and the industry is still reliant on coal. A lot of the iron and steel and the heavy industry use coal as a fuel. The encouraging sign is that the government has also initiated a plan for green hydrogen. You need to look at these newer technologies, newer methods of fuel substitution. All these things require policy support and public capital.

How are Indian financial institutions assessing their climate risk?

State Bank of India is talking about agriculture and allied agri-activities, HDFC Bank has done a scenario analysis in five states. It's on agriculture, on flooding and it's also on their portfolio of some what are known as hard-to-abate sectors such as steel, cement, power, oil and gas. State Bank of India said it may also indirectly face reputational risks, should it be involved in lending to environmentally sensitive projects which may have significant public opposition.

Why does India need a harder look at its climate policy?

India often talks about being one of the few countries that will meet its Paris commitments. That's true, but the Paris commitment was made by keeping a 2ºC increase in mind. After that, the Intergovernmental Panel on Climate Change came out with a report saying that 1.5ºC alone will have a devastating impact on the world economy and weather patterns. We are already seeing this devastation -- what happened in Uttarakhand in India [where a glacier burst on Feb. 7 caused severe flooding that killed more than 70 people], what's happening in Texas now with this snowstorm. Anecdotally, Srinagar [in India's Jammu and Kashmir union territory] was the coldest December in many decades and February was the warmest February in many decades. So, you are seeing these kind of wild swings.

What role does the government need to play?

Indian policymakers need to be far more nimble. You cannot say that we had committed this five years ago. India is the only major economy to not have a net-zero emissions target now, even China has a net-zero target. You need to have a target, an aspirational target, and then you will put in systems that will take you toward that. If we are going to be net-zero by 2050, on a broad calculation, you need to have 50% reduction by 2030. This is actually the action of the decade on climate change. If you miss this opportunity in this decade, then I'm afraid it may be too late. India's plan has to come very soon, though the transition can take place over a period of time.

As of March 5, US$1 was equivalent to 73.27 Indian rupees.