➤Indian banks cannot end carbon finance, but must plan for the transition, according to CDP.
➤More Indian banks quantify the risks of climate change for their businesses.
➤Post-COVID recovery is an opportunity to reset climate targets in India.
The global sustainability disclosure platform CDP says India’s banks and policymakers need to plan for the country’s removal from carbon dependence and that the recovery from the COVID-19 pandemic offers an opportunity to reset.
CDP has pressured banks to measure and disclose the risk climate change could pose to their portfolios. Based on information provided by some of the largest lenders, including the State Bank of India and HDFC Bank Ltd., CDP found that Rs.619 trillion, or nearly $ 84.4 billion, in debt of the major Indian financial institutions were threatened by extreme weather events. like droughts, floods and cyclones.
Damandeep Singh, Director of CDP India
The government and several companies have taken action to commit to meeting science-based greenhouse gas emissions targets needed to limit global temperature rise to 1.5 ° C-2 ° C compared to pre-industrial temperature levels. India now leads emerging economies in having the highest number of companies committed to such goals and is in sixth position in the world. The number of companies committing to these goals increased 37% to 52 in 2020, the nonprofit said in a report released on March 3.
Yet India’s current efforts are insufficient to meet the long-term climate goal of limiting temperature rise below 1.5 ° C in accordance with the 2015 Paris Agreement. the only major global economy that has yet to announce a net zero target. emissions after China last year announced its intention to become carbon neutral by 2060. India needs a target soon, so it can start putting in place the systems that will help achieve this goal, CDP India director Damandeep Singh told S&P Global Market Intelligence in an interview.
This is an edited transcript of the interview.
S&P Global Market Intelligence: What do you advise Indian financial institutions to finance polluting industries?
Damandeep Singh: Our role is to tell banks that rather than looking at their footprint, they should also look at their portfolio [and] what impact they have. Many Indian banks are now looking at their portfolio in terms of climate risk and assigning a monetary value to it. For example, the State Bank of India did it for the first time in 2020. Our attempt is to help them figure it out. Once you figure it out and cost it, you can plan for it and see how you can mitigate that risk.
As a country that will continue to use coal-based electricity for many years to come, how can banks avoid funding such projects?
You can’t make an abrupt and sudden stop for India, but Indian banks need to plan for a transition to a cleaner future, even though they may be forced to finance short-term coal projects. This is because the government is still trying to auction coal and the industry is still dependent on coal. Much of the steel industry and heavy industry uses coal as fuel. The encouraging sign is that the government has also initiated a green hydrogen plan. You have to look at these new technologies, these new methods of fuel substitution. All of these things require political support and public capital.
How do Indian financial institutions assess their climate risk?
State Bank of India talks about agriculture and related agricultural activities, HDFC Bank has done scenario analysis in five states. It’s about agriculture, about flooding and it’s also about their portfolio of certain sectors known to be hard to reduce like steel, cement, electricity, oil and gas. The State Bank of India said it could also be indirectly exposed to reputational risks, if it were involved in lending to environmentally sensitive projects that could meet with significant public opposition.
Why does India need a closer review of its climate policy?
India often speaks of being one of the few countries to meet its Paris commitments. It is true, but the commitment of Paris was made by keeping a 2ºC increase in mind. After that, the Intergovernmental Panel on Climate Change released a report indicating that 1.5ºC alone will have a devastating impact on the global economy and weather conditions. 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 is happening in Texas right now with this snowstorm. For the record, Srinagar [in India’s Jammu and Kashmir union territory] was the coldest December in decades, and February was the hottest February in decades. So you see these kind of wild swings.
What role should government play?
Indian decision-makers need to be much more agile. We cannot say that we made a commitment five years ago. India is the only major economy that doesn’t have a net zero emissions target now, even China has a net zero target. You have to have a target, an ambitious target, and then you will put systems in place that will get you there. If we want to be net-zero by 2050, on a broad calculation, you have to have a 50% reduction by 2030. That’s actually the decade’s action on climate change. If you miss this opportunity in this decade, then I fear it is too late. India’s plan is due to arrive very soon, although the transition could take place over a period of time.
As of March 5, US $ 1 was equivalent to Indian rupees 73.27.