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Artificial Intelligence to enforce Climate Risk Disclosure regulation – a pragmatic step for climate adaptation and India

On February 28, 2024, the Reserve Bank of India (RBI) issued a groundbreaking draft guideline titled “Disclosure Framework on Climate-related Financial Risks, 2024” that will require banks and other regulated entities (Res) to make comprehensive disclosures on their climate risk management practices. The guideline recognizes four thematic pillars, each requiring baseline and enhanced disclosure. The enhanced disclosure of Strategy thematic pillar requires RE to disclose how and when the climate scenario analysis was carried out, pertaining to climate scenarios and its associated physical and transition risks.”

The guideline addresses climate change with a resilience view, encompassing both mitigation and adaptation, as climate resilience gap poses the most emerging risk that is expected to have major financial stability implications. A standardized disclosure framework to foster transparency, enable better risk assessment, and facilitate more efficient allocation of capital is put in placei.

This announcement was made a week before United States’ Securities and Exchange Commission voting to approve new climate risk disclosure rules, while narrowing mitigation disclosures and adding adaptation pertaining to capitalized costs, expenditures expensed, charges, and losses incurred because of severe weather events and other natural conditions. This is a significant shift that will require many companies to include information about their emissions along with the other physical and transition risks that U.S. businesses must detail to the publicii.

The RBI’s guidelines are in sync with scientific learnings that with the increasing number of climate induced disasters, building and empowering adaptation, by government, private enterprises, and communities, is imperative for India. India has burgeoning metropolises that are not the best planned. When faced with a crisis do the custodians of large cities, operators of more than 1500 global capability centers with more than 1.5 million workforce and owners of nearly 250,000 manufacturing plants, have the tools to identify the imminent risks to these cities and setups, in terms of vulnerable populations.

Heatwave, cyclones, and floods are impacting nearly every industry

As India continues to break highest temperature record every year, nearly 15 states have more than 1 heatwave day, of which 9 have more than 10 heat wave days, Rajasthan, Madhya Pradesh, Himachal Pradesh, Gujarat, Jammu and Kashmir, Haryana, Delhi NCR, Uttar Pradesh, Jharkhand. The states of Odisha and southern West Bengal have wet bulb temperature of around 29 degrees Celsius, impacting the coastal livelihood such as salt and workforce in factories. The fire incident in landfills of Bhalswa in 2022 due to extreme heat took was a struggle to extinguish. Delhi, India’s capital, and Maharashtra sees a minimum of two major fires every year in vulnerable areas where unregulated industries are or in the slums and shanties that are made of highly inflammable materials.

While forest fires are anthropogenic, scarcity of water and rising temperature will see an increase in large forest fires. Per the Forest Report 2023 report, frequency of large forest fires in India has increased between 2021-22 and 2022-23iii. Fire breakout due to rising temperature has led to loss of rare trees and patta land in Kodaikanal forest of Tamil Nadu and loss of pine plantation in Uttarakhand.

WWF study 2017 outlines the reason for increase in forest fires in Indonesia as the huge plantations of natural rubber on former Indonesian rainforest sites. India is home to nearly 9 lakh hectare of rubber plantation in Kerala, Tamil Nadu, Tripura, Assam, and Meghalaya. Kerala and Assam are tropical rainforests. Natural rubber is also the raw material for tyres, whose export increased by nearly 50% in 2023. The Ministry of Agriculture, Forestry and Fisheries’ General Directorate of Rubber (GDR) issued four-point fire prevention guidelines to rubber plantation owners in January 2023iv.

Climate behavior is no longer anticipatory. Cyclone Biparjoy, which was predicted to primarily affect Gujarat, affected Rajasthan with higher intensity and damage. Similarly, extreme temperature events leading to heat wave declared as a disaster and increase in recurring climate event intensity such as floods and earthquake magnitude.

This raises the red flag underscoring the need for an end-to-end system that covers physical and transition risks. Risk undetermined is risk unresolved. Manual determination of climate risk at the advent of a climate event is reactive and not just-in-time when decisions need to be taken to prevent loss of lives, businesses, and assets. Artificial intelligence-based climate risk determination, designed at the intersection of climate science and built environment evidence-based learnings is near real time, thereby providing at least 72 hours of mobilization effort when nature isn’t kind. AI-based risk determination bundled with digitized planning and actions and scalable adoption builds climate resilience at every step, a.k.a Resilience360.

India’s technology sector has been in the forefront of climate mitigation such as carbon accounting. Today it is imperative to work at the intersection of technology and adaptation – decoding the complex and unpredictable nature of climate and building climate resilience is the future resolve.

Important steps are creating awareness about climate resilience gap, adaptation deficit and cost of inaction. Looking for solutions that could systematically solve for climate resilience gap for organizations, both public and private, by complementing their climate mitigation investment with an automated climate adaptation system – are an urgent priority.

Currently at the beta level of our work, we welcome the RBI’s guidelines as it will put into place the importance of early climate impact systems to protect communities and companies small and large.

The authors of this article are Samhita R., Managing Partner at STS Global, and Co-Founder and CEO of Resilience AI, along with Sushmita Malaviya, a Climate tech consultant.

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