Climate Risks and Opportunities White Paper presenting the current state in Indian Financial sector and emerging directions

This white paper by the Climate Policy Initiative examines the exposure of the Indian financial sector to climate-related risks and outlines a pathway for integration and product innovation. It highlights the vulnerability of India's economy to climate change, the current gaps in risk management and data within the banking, insurance, and capital markets, and provides a framework for implementing climate stress tests and disclosures aligned with international standards like the TCFD.

• India is highly vulnerable to climate change, ranking 7th out of 181 in the Global Climate Risk Index 2021, with over 75% of its districts identified as hotspots for extreme climate events. Failure to address these risks could result in an annual GDP loss of between 2.5% and 4.5%.
• There is a significant gap between the required climate investment in India and current levels. Between 2015 and 2030, an estimated INR 162.5 trillion (USD 2.5 trillion) is needed, or roughly INR 11 trillion (USD 170 billion) annually, while current annual investment is only approximately INR 3.09 trillion (USD 44 billion).
• Climate risks in the financial system manifest as physical risks, which cause direct harm to assets or disrupt value chains, and transition risks, which arise from the shift to a low-carbon economy via policy, technology, and market sentiment. These risks impact Pillar 1 risks, including credit, market, and operational risks.
• The Indian financial sector faces several challenges in managing climate risk, including limited and unreliable data, a 'nascent' stage of risk management practices, a lack of a green taxonomy, and a gap in professional capacity to handle climate-related financial risks.
• In the banking sector, preliminary analysis by the RBI indicates that while direct dependence on fossil fuels does not account for a large portion of bank credit, indirect dependence does account for a sizable portion, necessitating nuanced risk measurement strategies.
• The Indian insurance sector struggles with the efficiency of natural disaster claims; in 2020-21, unpaid claims for natural disasters reached INR 17.05 billion, representing 66.6% of total claims raised. The paper suggests the adoption of parametric insurance to provide faster payouts based on trigger events rather than actual loss assessments.
• To improve climate risk management, the paper recommends that Indian financial institutions adopt the TCFD framework, focusing on Governance, Strategy, Risk Management, and Metrics and Targets, and implement stress tests using a mix of IPCC scenarios for transition risk and NGFS scenarios for physical risk.

APA

Khanna, N., Purkayastha, D., & Bhatt, U. (n.d.). Climate Risks and Opportunities White Paper presenting the current state in Indian Financial sector and emerging directions. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2022/11/White-Paper-Climate-Risks-and-Opportunities_updated.pdf

Chicago

Khanna, Neha, Dhruba Purkayastha, and Upendra Bhatt. Climate Risks and Opportunities White Paper presenting the current state in Indian Financial sector and emerging directions. Climate Policy Initiative, n.d. https://www.climatepolicyinitiative.org/wp-content/uploads/2022/11/White-Paper-Climate-Risks-and-Opportunities_updated.pdf.

Wikipedia

{{cite report |last1=Khanna |first1=Neha |last2=Purkayastha |first2=Dhruba |last3=Bhatt |first3=Upendra |title=Climate Risks and Opportunities White Paper presenting the current state in Indian Financial sector and emerging directions |publisher=Climate Policy Initiative |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2022/11/White-Paper-Climate-Risks-and-Opportunities_updated.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{khannandclimate, author = {Khanna, Neha and Purkayastha, Dhruba and Bhatt, Upendra}, title = {{Climate Risks and Opportunities White Paper presenting the current state in Indian Financial sector and emerging directions}}, institution = {Climate Policy Initiative}, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2022/11/White-Paper-Climate-Risks-and-Opportunities_updated.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }