Need To Decouple GDP From Emissions, Says RBI's Dy Governor Patra

Amid increasing awareness of the adverse effects of climate change, certain measures have been taken to weaken the link between carbon emissions and global GDP growth. However, Deputy Governor Michael Debabrata Patra of the Reserve Bank of India (RBI) stated that complete decoupling has not yet been achieved.

"While the growing recognition of the adverse effects of climate change has led to some recent actions that are weakening the correlation between carbon emissions and GDP growth globally, an absolute decoupling is yet to happen," remarked Patra at the New York Fed Central Banking seminar.

He further emphasised the necessity for central banks and financial institutions to actively address climate change, as it directly impacts their mandates of price and financial stability.

Patra highlighted that 23 per cent of countries have committed to achieving net-zero emissions by 2050, 18 per cent have proposed legal obligations, and 59 per cent have made pledges in policy documents. These countries collectively contribute to 73 per cent of global CO2 emissions.

Patra noted that almost all countries have established timelines for transitioning to net zero emissions, with the majority aiming to achieve this target by 2050. While 23 per cent of the countries have enshrined the target as a legal obligation, 18 per cent have proposed making it legally binding, and the remaining 59 per cent have documented their pledges in official policy documents. Together, these countries account for approximately 73 per cent of global CO2 emissions.

The deputy governor stressed the growing acknowledgement that central banks and financial institutions are emerging as significant stakeholders in addressing climate change. He underscored the Earth's evolving climate over millions of years, emphasising the recent increase in global temperatures.

The RBI has taken initiatives, including mandating corporate social responsibility related to climate change, incorporating renewable energy loans in priority sector lending, joining the Network for greening the financial system, conducting surveys on climate risk and sustainable finance, issuing sovereign green bonds and introducing a framework for green deposits. 

Patra emphasised the need for immediate action in addressing climate change, highlighting the importance of sustainable development and global collaboration to ensure harmony between humanity and the planet.

The deputy governor expressed the growing realisation that, while governments are influential in addressing climate change, central banks and financial sector regulators and supervisors are becoming major stakeholders. Financial institutions, playing a crucial role in intermediation, have a more direct impact on addressing climate change, which in turn affects the achievement of their mandates of price and financial stability.