Network for Greening the Financial System
Source : Down To Earth
GS II : Conservation, environmental pollution and degradation, environmental impact assessment

Why in News ?

Reserve Bank of India (RBI) has joined the Network for Greening the Financial System. 

• It is a voluntary group of central banks.

Key Facts

• RBI has joined to share best practices and contribute to the development of environment and climate risk management in the financial sector
• It aims to mobilise mainstream finance to support the transition towards a sustainable economy.
• How climate change affect the finance ?
  • Climate change poses risks to financial stability in the form of
    • Physical risks : extreme and slow onset weather events
    • Transition risks : changes in policy, legal and regulatory frameworks, consumer preferences and technological development while transitioning to a low-carbon economy
• New Zealand became the first country to announce a law that will require financial firms to disclose climate-related risks and opportunities.
  • The law seeks to bring climate risks and resilience into the heart of financial and business decision-making.

World Economic Forum’s (WEF) and Global Risks Report 2021

• Climate action failure and infectious diseases as the highest risks.
• Risk perception of climate action failure has remained unchanged.
• It suggesting that not delaying the shift towards a greener economy despite the pandemic.
• About $5 trillion will be needed to be invested annually in green infrastructure, far exceeding the current floor commitment of $100 billion annually.
• World Bank report estimates that losses to India’s gross domestic product by 2050 due to climate change could be $1,178 billion.

Independent Expert Group on Climate Finance

• It mentioned the the urgency of fulfilling the $100 billion commitment from public contributors of climate finance including bi-lateral, multilateral climate funds, multilateral development banks and development finance institutions.
• Also to leverage far greater private finance.
• The report explains developed countries by highlighting four key deficiencies that include
  • Low levels and declining share of grant finance
  • Under funding of adaptation
  • Lack of adequate finance for least developed countries and small island developing states
  • Obstacles to expeditious access by developing countries to climate finance.

Private sector climate financing

• To create climate positive actions the starting point is to make private sector account for and mitigate systemic risks.
• Conventional economic models account only for linear risks which are critically insufficient while considering the imperative of low-carbon growth pathways.
• Private sector across the world require to alter processes such that their investments do not exacerbate climate change.
• Focus on three key areas progressively
  • Assess whether companies’ actions that cause negative externalities are mitigated.
  • Align with UN Sustainable Development Goals.
  • Alignment with decarbonisation pathways.

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