When the Reserve Bank of India released its Framework on Climate Risk and Sustainable Finance in July 2025, it marked a significant shift in how Indian banks are expected to think about environmental risk. For the first time, climate-related financial risk was formally recognized as a prudential concern, not just a corporate responsibility exercise.

The framework requires banks to identify, measure, monitor, and report climate risks in their portfolios. It demands governance structures, risk management processes, and scenario analysis. And crucially, it requires disclosure — banks must publicly report their exposure to climate-sensitive sectors and their strategies for managing climate transition and physical risks.

Eight months in, the first round of climate risk disclosures from Indian banks has been published. The gap between what the framework asks for and what banks are actually delivering is substantial.

What the Framework Requires

The RBI’s framework is principles-based rather than prescriptive. It doesn’t mandate exact methodologies or reporting templates, which gives banks flexibility but also allows for significant variation in how requirements are interpreted.

Banks are expected to:

• Assess exposure to climate-sensitive sectors (coal, thermal power, heavy industry, agriculture)
• Conduct scenario analysis on how climate risks could impact their loan portfolios
• Integrate climate risk into credit decision-making processes
• Establish board-level governance for climate risk management
• Disclose all of the above publicly in a structured format

The intent is clear: climate risk should be managed with the same rigor as credit risk, market risk, or operational risk.

What Banks Are Actually Disclosing

The reality, based on the first round of disclosures, is far less comprehensive.

Most banks have published high-level statements acknowledging climate risk and describing governance structures. Typical disclosures mention a sustainability committee at the board level and a working group at the executive level. That’s governance on paper.

What’s largely missing is substantive analysis. Very few banks have disclosed detailed sector-wise exposure breakdowns. Scenario analysis, where it appears, is often vague and qualitative rather than quantitative.

A bank might state that it has “assessed physical risks from flooding and transition risks from decarbonization” without providing numbers on actual portfolio exposure, methodologies used, or specific findings from the assessment.

The Centre for Financial Accountability reviewed disclosures from 20 major Indian banks and found that only four provided what could be considered comprehensive climate risk information. The rest offered summary statements that checked the disclosure box without delivering meaningful transparency.

The Methodological Challenge

Part of the gap is understandable. Climate risk assessment for financial portfolios is genuinely difficult. Unlike credit risk, where banks have decades of data and established models, climate risk modeling is still maturing.

How do you quantify the risk that a coal-dependent power plant will become a stranded asset as India transitions to renewables? What’s the financial impact of monsoon variability on agricultural loans? How do you model transition policy risks when policy pathways are uncertain?

International standards like the Task Force on Climate-related Financial Disclosures (TCFD) provide frameworks, but applying them in an Indian context requires adaptation. Indian banks are building these capabilities but aren’t there yet.

The problem is that incomplete capability doesn’t excuse inadequate disclosure. If a bank can’t reliably model climate risk, that itself is something shareholders and regulators need to know.

The Data Gap

Climate risk assessment depends on data that banks often don’t collect systematically. To assess physical risk, you need to know the geographic location of assets the bank has financed — not just the borrower’s address but the actual location of the factory, the farm, the infrastructure project.

Most banks don’t maintain that data granularly. Loan systems track borrower information and financial metrics, not physical asset locations and their exposure to climate hazards.

Similarly, transition risk assessment requires understanding the emissions profile of borrowers and their decarbonization plans. Banks are starting to request this information from large corporate borrowers, but it’s not systematically collected across portfolios.

Without the underlying data, detailed risk assessment is impossible. Banks acknowledge this but have been slow to retrofit data collection systems to capture climate-relevant information.

Competitive Sensitivity

There’s also a commercial sensitivity issue. Banks are hesitant to publish detailed breakdowns of exposure to high-risk sectors because it could be viewed negatively by stakeholders.

A bank with heavy exposure to thermal coal might fear that detailed disclosure will lead to investor pressure, reputational damage, or customer concerns. So they disclose in general terms rather than specifics.

This defeats the purpose of the framework. The point of disclosure is enabling stakeholders to assess risk, which requires actual numbers, not high-level summaries.

International Comparison

Indian banks’ climate disclosures are behind global peers, particularly European banks operating under more mature regulatory frameworks. European banks publish detailed sector breakdowns, scenario analysis results, forward-looking targets, and progress metrics.

That’s partly because Europe’s regulatory framework is more prescriptive and has been developing for longer. The EU Taxonomy provides clear definitions. TCFD compliance is more mature. Banks have had more time to build internal capabilities.

But it’s also cultural. European banks face more intense stakeholder pressure on climate issues. Investors, regulators, and civil society demand transparency. Indian banks haven’t faced the same level of scrutiny — until now.

What Needs to Happen

For the RBI’s framework to achieve its goals, several things need to change:

More prescriptive guidance. While principles-based regulation has merits, the variation in current disclosures suggests banks need clearer direction on minimum disclosure standards.

Capacity building. Banks need support in developing climate risk assessment methodologies. This could come from the RBI, industry associations, or external advisors. Organizations like Team400 work with financial institutions on data analytics and risk modeling that could extend to climate risk contexts.

Data infrastructure investment. Banks need to upgrade systems to capture climate-relevant data as part of standard lending processes.

Consequences for inadequate disclosure. If banks can publish minimal disclosures without regulatory pushback, there’s limited incentive to invest in better analysis. The RBI needs to signal that substance matters, not just compliance with disclosure requirements in form.

Standardization. A common taxonomy for climate-sensitive sectors and standardized reporting templates would make disclosures comparable across banks and more useful to stakeholders.

The Broader Context

Climate risk disclosure is part of a global shift in how financial institutions are expected to account for environmental factors. India’s framework aligns with international trends but lags in implementation.

The gap isn’t unique to India. Many jurisdictions struggle with the transition from policy frameworks to meaningful practice. But given India’s vulnerability to climate impacts — extreme weather, water stress, agricultural dependence — and the size of its financial sector, getting this right matters significantly.

The Bottom Line

The RBI’s climate risk framework is a meaningful step forward in Indian financial regulation. The first round of disclosures reveals that most banks are in the early stages of implementation. They’ve established governance structures but haven’t yet built the analytical capabilities to assess climate risk rigorously or disclose transparently.

This will improve with time as methodologies mature and regulatory expectations become clearer. But the pace needs to accelerate. Climate risks aren’t waiting for banks to build their modeling capabilities. The longer the gap between framework and practice persists, the more exposure accumulates without adequate management or visibility.

Indian banking needs to move beyond checkbox compliance toward genuine integration of climate risk into decision-making and honest disclosure of what they know and what they don’t. That transition is underway but far from complete.