On RBI and Green Taxonomy – Careers Ready


Reference

recently Reserve Bank of India (RBI) The latest monetary policy report of Priority has been given to 'extreme weather events' and 'climate crisis'.

monetary policy

  • It is the macroeconomic policy set by the Reserve Bank of India (RBI), which includes the management of money supply and interest rates.

related facts

  • Discussion on 'Climate Risk and Sustainable Finance' in July 2022 Starting with the letter, RBI has made incremental progress to address the transition to a green economy.
    • It is also accepted that India needs to achieve its net zero by the year 2070 to achieve goals More than $17 trillion needed Is.
  • The European Central Bank has for the economic value chain of green taxonomy Helped in preparing.
    • EU taxonomy It is a complex system for classifying which parts of the economy can be marketed as sustainable investments. This includes economic activities as well as detailed environmental criteria.

Important information from RBI's latest monetary policy report

  • Climate and Economic Stability: 'Extreme weather events' and 'climate crisis' are not only affecting food inflation but also having a cascading effect on interest rates, thereby affecting the financial stability of the economy.
    • The report states that global average temperature is rising There is also an increase in extreme weather events, and its economic and social impacts are becoming increasingly clear.
    • The report warns that 'if the inflationary crisis persists, it could dampen inflation expectations, and the RBI will need to raise interest rates to curb inflation, which will lead to higher output.
  • Maximum Economic Output: The neutral interest rate refers to the profitability of the central bank's monetary policy that allows it to maintain maximum economic output while keeping inflation under control.

The natural rate refers to the short-term real interest rate. which would be strong in the absence of a business cycle crisis with potential output, equal investment and stable inflation.

    • The report warns that in the absence of any climate mitigation policies 'Long-term (economic) output' may decline by about 9% by 2050 Could.
  • New-Keynesian model: The report mentions a 'New-Keynesian model that includes a physical climate risk damage function' which will be used to estimate counterfactual macroeconomic impacts of climate change as opposed to a no climate change scenario.

About Green Taxonomy

  • Green taxonomy is defined as a framework for assessing the sustainability credentials and potential rankings of an economic activity.
  • Need: In recent decades, the challenges of global warming and other aspects of environmental degradation have prompted all stakeholders in society, including the financial sector, to take responsibility for environmental sustainability.
  • Objective: Helping financial stakeholders and others determine which investments can be labeled 'green' for their jurisdiction.
  • Significance: Support for making informed decisions on environmentally friendly investments can encourage projects and activities that help enhance environmentally sustainable economic growth.

Principles of Green Taxonomy

The World Bank Group recommends principles and methodology for developing a taxonomy of environmentally sustainable activities.

  • Multidimensional Effects: Green taxonomy should be developed in a way that has multidimensional impact on green finance.
  • Environmental Objectives: The taxonomy should focus on India's most significant environmental challenges (climate change mitigation and adaptation, pollution prevention and control, resource efficiency, natural resource conservation, and ecosystem/biodiversity conservation).

  • These are serious challenges in sectors like energy, manufacturing, transportation, agriculture, waste and buildings. The taxonomy can thus focus on these areas so as to maximize the positive environmental outcomes arising from them.
    • In India, in contrast to quantitative technical screening criteria, sustainable agriculture and animal husbandry practices Requirement to include pre-specified set Is.
  • Standard Criteria: The taxonomy is integrated into nationally determined contributions, major national plans and policies for environmental action, and included in national norms and standards should be done.
    • Indian taxonomy Ministry of Environment, Forest and Climate Change (MOEF&CC) According to Central Pollution Control Board Pollution standards set by (CPCB), Prescribed by MOEF&CC and Ministry of Jal Shakti water consumption norms and Defined by MOEF&CC EIA protocol Must depend on.
    • Monetary valuation of ecosystem services can also be used to assess ecosystem and biodiversity loss.
  • Innovative: Such taxonomy for green transition Provides freedom to choose between alternative routes Is.
    • India should use the latest climate science to technically vet parameters related to GHG emissions limits. The norm should be in line with 1.5°C instead of 2°C.
    • India should establish its own screening criteria to determine eligibility for green finance.
  • In harmony with international standards: Existing Indian standards may be modified to be at par with international benchmarks within the scope provided by domestic circumstances.
  • Alignment of tracking of green finance and disclosure norms: Green finance needs to be monitored through transparent and defined disclosures and reporting.
    • RBI and Securities and Exchange Board of India Regulators like Securities and Exchange Board of India (SEBI) should compel financial market participants to meet environmental targets.
    • The Ministry of Corporate Affairs receives companies from economic activities There should be an order to list environmental objectives.
  • Regular Reviews and Updates: Timely updates are required to incorporate changes in the level of development, technology, policy, standards and environmental conditions.

Suggested actions to define the content of a green taxonomy

Need for defined classification

  • Information: Reducing incidents of information asymmetry.
  • Explanations: Rejecting multiple interpretations of green finance.
  • Risk Mitigation: Reducing greenwashing risks.
  • clear understanding: Providing transparent clarity of the environmental footprint of the economic activities underlying the investment.
  • Investor Friendly: To provide guidance sought by investors in making environmental investment decisions.
  • Directness: Providing exposure to capital-starved green sectors, thereby enabling them to move away from renewable energy (which currently accounts for 80% of green finance in India) Allows to attract required investment Is.
  • Management and Monitoring: This could become the standard for financial institutions and companies in managing and monitoring the environmental sustainability of their financial profiles, while allowing regulators like SEBI and RBI to monitor these entities by mandating disclosures that align with the classification.
  • Standardization: It is involved in the creation of environmental, social and governance (ESG) indices. Facilitate standardization of data collection, reporting and impact measurement methodology Can do.

RBI's efforts towards green economy

  • RBI's approach: The RBI has made incremental progress in addressing the transition to a green economy since its July 2022 discussion paper on climate risks and sustainable finance.
  • Green Method: RBI issues sovereign green bonds worth ₹16,000 crore Issuance and expand the resource pool by allowing foreign institutional investors to participate in future green government securities.

Sovereign Green Bonds (SGrBs) in India

  • This is a type of government loan specifically for efforts to transform India into a low-carbon economy. funded projects Does.
  • Central banks and governments around the world are calling on financial institutions to accelerate the transition towards a green future. greenium (Greenium) are encouraged to adopt.
    • However, SGrBs pay lower interest than traditional G-Secs, and the amount left by the bank by investing in them is greenium It is said.
  • First released in India: RBI had issued SGrBs worth ₹16,000 crore with maturities in 2028 and 2033 in two tranches in January and February last year.
  • Classification under Statutory Liquidity Ratio (SLR): Furthermore, these green government-securities (G-Secs) were classified under SLR.
    • SLR, RBI There is a liquidity rate set by the ICICI Bank that financial institutions must maintain before they can lend to their customers.

  • steps to be taken
    • comprehensive assessment: RBI should thoroughly assess the quantitative and qualitative impacts on economic and financial stability due to climate change.
    • Inclusion: It should encourage administrative consultation to populate a layered green taxonomy that reflects India's fragmented developmental trajectories.
    • Mitigation of risks: As the economy moves towards a sustainable future, efforts should be made to reduce transitional risks in the financial system.

the way forward

  • Clear definition: country's existing A taxonomy according to environmental goals, laws, standards and labeling schemes The definition should be developed.
  • Technological Advancement: The focus should be on providing a technically sound rationale for green activities and investments.

  • For environmental and social risks: The taxonomy may include a section describing national or, if relevant, regional frameworks to address the potential for risk transmission from one environmental objective to another or to different population groups.
  • Risk Mitigation Plans: These are based on existing national standards, policies or regulations and will inform users about how these potential risks are addressed?
  • Substantial Investment: The taxonomy should be an official guideline for selected investments in both the public and private sectors.
    • It has been realized that for a taxonomy to be effective, it must be integrated with existing and potentially new incentives (As- It is important to combine this with fiscal stimulus, soft credit lines, guarantees, etc.
    • Example: Reducing capital requirements for sustainable financial products, setting regulatory quotas (minimum annual targets for the distribution of green finance) and reducing refinancing rates based on solid market research.
  • learning from international experience
    • China: Mandatory green lending guidelines issued by the China Banking and Insurance Regulatory Commission (CBIRC) and the People's Bank of China (PBOC) have led to an increase in green lending for projects offering energy savings or emissions reductions.
    • Bangladesh: The green loan portfolio of Bangladeshi banks also increased significantly after the central bank set minimum annual targets for green financing for banks and other financial institutions.

conclusion

A clearly defined and structured taxonomy provides better information and Support for more efficient decision making and feedback on investment opportunities that contribute to achieving national environmental objectives. This will impact India's ambitious green transition and aIntroduction of National Classification to contribute to the global Net Zero vision Will reflect India's aspiration to increase the

Leave a Comment

Top 5 Places To Visit in India in winter season Best Colleges in Delhi For Graduation 2024 Best Places to Visit in India in Winters 2024 Top 10 Engineering colleges, IITs and NITs How to Prepare for IIT JEE Mains & Advanced in 2024 (Copy)