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

The document examines the vulnerability of India's financial system to climate change, noting that extreme climate events affect over 75% of Indian districts and could reduce annual GDP by 2.5% to 4.5%. It identifies significant gaps in the Indian financial sector, including limited data on risk factors, a lack of a green taxonomy, and a reliance on external credit ratings that do not capture the long-term quality of green projects. The paper advocates for the adoption of the TCFD framework for disclosures, the implementation of climate-specific stress tests, and the development of innovative products such as parametric insurance and carbon ratings. It specifically highlights the need for tailored interventions for the MSME sector and improvements in the payout efficiency of natural disaster insurance.

• Climate change poses a severe economic threat to India, with estimates suggesting a potential annual GDP loss of 2.5% to 4.5% if not addressed. Over 75% of Indian districts are identified as hotspots for extreme climate events.
• There is a substantial investment gap for climate action in India; while estimates suggest a need for approximately USD 170 billion annually (or USD 2.5 trillion from 2015 to 2030), current annual investment is only about USD 44 billion.
• The Indian financial sector faces several systemic challenges in managing climate risk, including incomplete and unreliable data, a lack of a formal green taxonomy, and a 'nascent' stage of risk management where capital allocation depends on external ratings that fail to account for the long-term credit quality of green activities.
• Climate risks impact the financial system through physical risks (direct harm to assets) and transition risks (policy, technology, and market shifts), which in turn affect Pillar 1 risks such as credit, market, and operational risks.
• The Indian insurance sector struggles with efficiency in natural disaster claims; in 2020-21, unpaid claims for natural disasters totaled INR 17.05 billion, representing 66.6% of total claims raised.
• To improve resilience, the paper recommends that Indian financial institutions adopt the TCFD framework for disclosures and implement climate-specific stress tests using a mix of IPCC scenarios for transition risks and NGFS scenarios for physical risks.
• The MSME sector in India faces a significant credit gap estimated between INR 20 to INR 25 trillion, which may be exacerbated because green projects are often perceived as high 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} }