Structural challenges such as managing global debt vulnerabilities and dealing with climate transition are uphill tasks which no country can achieve alone, said Shaktikanta Das
With billions of dollars flowing for green energy transition across the globe, RBI Governor Shaktikanta Das on Friday emphasised the need for realistic "green ratings reflecting the actual environmental impact" of the projects to avoid "green-washing" and ensure that developing world gets adequate funds.
One of the key risks to global growth is climate change, along with inflation, financial stability and geopolitical risks, he said while addressing a G20 seminar on the global economy, organised by the Finance Ministry and the Reserve Bank of India (RBI).
"While we focus on the long-term structural challenges such as climate change, through supply of adequate and affordable financing for green transition, we must, however, be mindful of the potential financial stability implications of green transition," Das said.
He noted that green transition efforts must address both the physical as well as the transition risks of climate change.
"Green flows today are dependent on ESG (Environment, Social, Governance) ratings. Recent research shows that these ESG ratings do not adequately reflect financial and non-financial materialities of these investments.
"Therefore, there is a need to ensure that 'green ratings' reflect the actual environmental impact of the projects so as to avoid green-washing," the Governor said.
Underlining the need for a smooth and orderly green transition to avoid disruptions to economic activity and loss of growth potential, Das said this is all the more needed since the actual financial flows to green projects are highly skewed and are, by and large, concentrated in advanced economies.
"Therefore, there is an urgent need to enhance green capital flows to emerging markets and developing economies," Das said.
He mentioned about a recent IMF report on global financial stability which showed that the green flows to the third world and emerging markets are curtailed by inadequate supply of green rated investment projects.
Suggesting a way out, he said a crucial aspect of the greening effort is ensuring adequate flow of private financing through globally comparable and transparent disclosure norms and taxonomy of green activities.
Also, the Governor noted that the International Sustainability Standards Board is actively working on these aspects.
Calling for a more enabling regulatory regime for green financing, Das said while efforts are underway to improve and deepen green financing, "it's equally critical to fortify regulatory frameworks that enable implementation of climate taxonomy across jurisdictions, prevent green-washing and facilitate sufficient green capital inflows to the emerging markets and developing economies".
A collaborative approach involving governments, the private sector, financial institutions, civil society organisations, and the general public is essential for ensuring a successful transition to a sustainable future, Das said.
Noting that structural challenges such as managing global debt vulnerabilities and dealing with climate transition are uphill tasks which no country can achieve alone, he said recommitting to multilateralism is the need of the hour, something that's under tremendous stress now.