India’s top banks failing to tackle climate risk as threats grow

A new report warns India’s largest banks still fail to integrate climate risks into lending decisions despite worsening climate disasters, weak stress testing and limited disclosure of financed emissions and coal exposure.

India’s biggest banks are still failing to fully integrate climate risks into lending decisions despite growing threats from floods, heatwaves and drought linked to global warming, a new analysis has found.

Although 92% of major lenders now disclose at least some climate-related information, up sharply from 40% in 2022, there is little evidence the data is being used to shape lending policies or reduce risky exposure, according to an assessment of 35 banks by Bengaluru-based think tank Climate Risk Horizons.

“The economic impacts of physical climate risks such as floods, heat, and drought are worsening,” said Sagar Asapur, head of sustainable finance at the group and co-author of the report.

“These threats cannot be treated as peripheral sustainability concerns. They affect borrower cash flows, collateral quality and portfolio stability,” he added.

The report, published Wednesday, found that fewer than half of the banks surveyed had begun climate stress testing exercises. None disclosed the results, including possible impacts on asset quality or overall portfolio performance.

Only two lenders reviewed, Federal Bank Ltd. and RBL Bank Ltd., had explicit policies setting clear timelines to phase out lending to the coal sector, the report said. Another institution had made a more limited commitment.

Climate advocates consider reduced financing for coal projects a key step in cutting fossil fuel emissions.

India has faced mounting losses from natural disasters worsened by climate change, with billion-dollar disasters becoming increasingly frequent, according to Swiss Re. Total losses linked to such events exceeded $12 billion in 2023, a separate report by the Centre for Environment and Energy Development found last year.

The Reserve Bank of India has also warned that rising climate-related threats could undermine financial stability. While the central bank has launched a climate data repository over the past two years to improve access to climate-related information, it has yet to introduce mandatory climate risk disclosure rules for lenders.

India’s government in March outlined a cautious position on adopting tougher targets to cut greenhouse gas emissions and reduce dependence on fossil fuels, limiting prospects for faster climate action in the world’s third-largest emitter.

For most Indian banks, progress on climate disclosure “is not getting translated into decision-useful risk management,” the report’s authors wrote.

Banks that delay action “risk accumulating exposures, becoming stranded, non-performing and socially undesirable,” they warned.

The analysis also highlighted persistent gaps in emissions reporting, particularly around financed emissions, the greenhouse gases generated by companies financed by banks. Such emissions typically account for more than 95% of a lender’s total climate impact.

Only five of the banks surveyed disclosed financed emissions data for the financial year ending March 2025, according to the study.