The India Meteorological Department has forecast above-normal rains this year, in its first forecast of the Southwest Monsoon. Such an optimistic IMD forecast, for the first time in a decade, should come as a big relief for the farmers, parched cities and the economy in general. We look forward not only to an adequate volume of rains but also an equal spatial distribution of the SW Monsoon which has been reeling under the El Nino phenomenon, combined with the extreme weather situations across different regions of the world. The extended periods of scorching temperatures, being witnessed year after year aren’t just uncomfortable but also pose a significant threat to public health and infrastructure including power, water and the country’s economic well-being.
The past few years have witnessed temperatures soaring to 45 degrees and even beyond. Heatstroke can exacerbate chronic health conditions, disrupt agricultural yields, and strain power grids. The harsh effects of heatwaves were visible in food inflation and the shutting down of schools. Heatwaves and weather patterns such as El-Nino demand policymakers to adopt a paradigm shift. One that compels regulators and governments to take concrete action to mitigate the risks and build resilience for the future.
Economic Impact Of Heatwaves
Globally, heatwaves have similarly disrupted workforces and supply chains, with high temperatures impeding outdoor labour and causing logistical challenges in transportation and distribution. In India, where a significant portion of the population works in agriculture and informal sectors, heatwaves can lead to increased absenteeism, decreased productivity, and higher healthcare costs. Moreover, disruptions to supply chains can ripple through the economy, affecting industries such as manufacturing, construction and services.
India has experienced some of its worst heatwaves in recent years, with temperatures soaring above 50 degrees Celsius in some regions. According to a Parliamentary answer, areas covering the states of Punjab, Himachal Pradesh, West Rajasthan, East Rajasthan, Madhya Pradesh, Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Vidarbha, Odisha, Telangana and Andhra Pradesh have experienced a heatwave for over 8 days in 2023. In response, India has introduced policies aimed at mitigating the impacts of heatwaves, including initiatives to improve heat resilience in agriculture and urban planning. Such extreme weather had had a devastating impact on agricultural output, leading to crop failures, livestock losses, and reduced water availability. Heatwaves have also disrupted workforces and supply chains across the country, hampering productivity and increasing operational costs for businesses.
Policy Makers' Intervention For Mitigation
The Reserve Bank of India (RBI) plays a crucial role in mitigating heatwave risk by incorporating climate-related considerations into its regulatory framework. The RBI can implement measures such as stress-testing banks' exposure to climate risks, integrating climate risk assessments into monetary policy decisions, and promoting sustainable finance initiatives. By proactively addressing heatwave risks, the RBI can help safeguard financial stability and promote long-term economic resilience.
Banking regulators worldwide are actively addressing the implications of climate change on financial stability, including the specific risks posed by heatwaves. They are integrating climate risk assessments into supervisory frameworks, ensuring that banks adequately manage and disclose their exposure to heatwave-related risks. For example, the European Central Bank (ECB) has integrated climate risk assessments into its supervisory framework for banks operating in the Eurozone.
As part of its supervisory review and evaluation process (SREP), the ECB requires banks to conduct climate risk assessments, including scenarios that assess the potential impact of heatwaves and other extreme weather events on their balance sheets and financial stability.
In addition to regulatory measures, banking regulators are promoting sustainable finance initiatives to support the transition to a low-carbon economy and mitigate climate-related risks. This includes incentivising green lending and investment practices, penalising investments in high-carbon assets, and enhancing disclosure requirements to ensure transparent reporting on banks' climate-related activities.
By taking proactive steps to address heatwave-related risks and promote climate resilience in the banking sector, regulators are playing a critical role in safeguarding financial stability and facilitating the transition to a more sustainable and resilient economy in the face of climate change.
ESG Beyond Ratings
India's Business Responsibility and Sustainability Reporting (BRSR) framework has provided businesses with a platform to disclose their climate-related risks and mitigation strategies, offering investors and stakeholders valuable insights into their environmental performance. In response to heatwave risks, businesses are implementing innovative strategies such as investing in heat-resistant infrastructure, adopting water-saving technologies, and implementing flexible working arrangements to protect employees from extreme heat. These proactive measures not only enhance resilience to heatwaves but also contribute to long-term sustainability and competitiveness.
To tackle heatwaves effectively, corporations, regulators, and individuals must adopt several simple yet impactful solutions. At the corporate level, investing in heat-resistant infrastructure, promoting energy efficiency, and implementing flexible working arrangements can help mitigate heatwave risks and protect employee health.
Regulators such as the RBI can incorporate climate risk considerations into their policies and promote sustainable finance initiatives to build resilience to heatwaves. At the individual level, simple measures such as staying hydrated, seeking shade, and avoiding outdoor activities during peak heat hours can help reduce heat-related health risks. By adopting a multi-faceted approach, stakeholders can work together to build resilience and adapt to the challenges posed by heatwaves, ensuring a sustainable and prosperous future for all.
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