IMPLIED TEMPERATURE RISE AND BANKS’ PREPAREDNESS TOWARDS CLIMATE CHANGE SUSTAINABILITY

Paper Number :WP48/2024
Publication Date :Oct. 29, 2024

There is an increased focus by globally best-practiced banks on sustainable finance to align their portfolios with climate goals, particularly in reducing carbon emissions. The Implied Temperature Rise (ITR) indicator is a climate health metric for investment decisions. This article illustrates how ITR acts as a forward-looking metric that will guide Indian banks to better align their portfolios towards sustainable climate goals in the long run. The ITR approach provides banks with a clear and quantifiable metric for measuring how their investment or lending portfolios are aligned with the global climate targets, such as the 2°C or 1.5°C goals set by the Paris Agreement. This makes it easier for banks to evaluate and communicate their climate risk exposure to stakeholders.