According to a study, India’s financial sector is highly vulnerable to the risks associated with the economy’s switch from largely relying on fossil fuels to clean energy. Sixty percent of lending to the mining sector was for oil and gas extraction, while one fifth of manufacturing sector debt was for petroleum refining and related industries, according to an analysis of individual loans and bonds.
Although electricity production is by far the largest contributor to carbon emissions, only 17.5% of all loans are made to pure-play renewables. The authors also noted that there were insufficient experts in India’s financial institutions to provide appropriate advice during such a transition.
The study found that less than half of the 154 finance professionals surveyed were familiar with environmental issues like greenhouse gas emissions, climate change adaptation and mitigation, and transition risks. Environmental, social, and governance (ESG) risks are only collected by four of the ten major financial institutions surveyed, and these institutions do not routinely incorporate that data into financial planning.
According to the findings, policymakers, regulators, and financiers in developing and emerging economies ought to take swift action to ensure a smooth transition to net-zero. The Reserve Bank of India is expected to launch 5-year and 10-year green bonds worth 40 billion in India’s first sovereign green bond auction later this week.
Power generation, chemicals, iron and steel, aviation, and other high-carbon industries account for 10% of Indian financial institutions’ outstanding debt. However, due to their high levels of debt, these industries also lack the financial flexibility to deal with unexpected events.
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