Extreme weather events could put Indian banks at $84 billion risk

An increase in extreme weather events like floods, droughts and cyclones could put the Indian banks at a risk of $84 billion, says a report – Building Back Greener by a nonprofit environmental disclosure platform CDP.

The banks, HDFC Bank, State Bank of India, Axis Bank Ltd and IndusInd Bank Ltd, flagged exposure to environmentally sensitive business including cement, coal, oil and power. Lenders accounted for about 87% of the total risk, valued at about $97 billion; this was across 67 top Indian companies that responded to CDP.

Damandeep Singh, New Delhi-based director of CDP India, described climate as the biggest risk to businesses in the long run. “Financial institutions are beginning to understand it. As investors look at funding companies based on environmental, social and governance disclosures, we have seen many more companies report climate change risk.”

The report highlighted that climate change has already shown substantial impacts on businesses all around the world and this is expected to continue. It said that as per a 2019 report, the total direct economic losses incurred due to climate-related natural disasters in 2019 were estimated at US$232 billion. In India, the monsoon floods in June – October 2019 caused an economic loss of US$10 billion and claimed 1,750 lives. Additionally, the Bank of England has estimated asset losses worth US$20 trillion due to climate change if no action is taken now.

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Indian businesses, as per the CDP report, realize that the risks posed by climate change are here to stay. “Therefore, business leaders like Reliance Industries and JSW Energy have taken voluntary commitments to go net-zero by 2035 and carbon neutral by 2050, respectively.

However, the State Bank of India is facing concerns from shareholders and investors over its proposal to help fund the controversial Carmichael coal mine in northern Australia, valued its total climate risk at 3.83 trillion rupees. The bank said it may indirectly face reputational risks, should it be involved in lending to environmentally sensitive projects which may have significant public opposition.