IBPS Test 24

Green financing and Environmental, Social and Governance investing have emerged as transformative forces reshaping the priorities and practices of Indian banks and financial institutions, driven by growing recognition of the material financial risks posed by climate change and the enormous financing requirements of India's green economy transition. The concept of green financing encompasses the deployment of capital towards projects and activities that deliver environmental benefits including mitigation of greenhouse gas emissions, adaptation to climate change impacts, conservation of biodiversity, pollution prevention, and sustainable use of natural resources. For Indian banks, the green financing agenda has multiple dimensions including the financing of renewable energy projects, energy efficiency improvements, green buildings, sustainable agriculture, clean transportation, and water and waste management infrastructure. The renewable energy sector has been the most significant recipient of green finance in India, as the country has committed to ambitious targets for solar, wind, and other clean energy capacity addition and has attracted substantial domestic and international investment for these projects. Long-tenor project loans from banks and development finance institutions, green bonds issued in domestic and international capital markets, and equity financing from renewable energy focused funds have all contributed to the sector's growth. The Securities and Exchange Board of India introduced a framework for green bonds in 2017, providing a regulatory foundation for issuance of bonds whose proceeds are earmarked for eligible green projects. Indian banks and corporations have issued green bonds in domestic and overseas markets, with proceeds deployed for renewable energy, sustainable water management, and other eligible purposes. The Reserve Bank of India has been developing a framework for climate risk management in Indian banks, recognising that physical risks from extreme weather events and transition risks from policy changes aimed at decarbonisation represent material financial risks for the banking sector. Scenario analysis for climate-related financial risks is being incorporated into bank stress testing frameworks. The Network for Greening the Financial System, a global coalition of central banks, has been developing methodologies for assessing climate financial risks, and the Reserve Bank has been engaging with this international initiative. ESG criteria are increasingly being incorporated into investment analysis by institutional investors, asset managers, and funds, creating capital market pressure on corporates to improve their environmental and social performance.