Publication / 09 Nov 2015

Natural Capital Risk Exposure of the Financial Sector in India

The German Development Cooperation (GIZ), through the Emerging Markets Dialogue Program on Green Finance, commissioned Trucost to quantify the natural capital costs of 50 economic sectors in India.

Indian banks are financing business sectors with a total natural capital cost of INR 90,496 billion, equivalent to 2.9 times the credit provided to those sectors. If these natural capital costs were internalized by borrowers, it would impact their ability to repay loans significantly.

Indian banks are more exposed to natural capital risks than equity investors due to loans made to natural capital intensive sectors such as agriculture and power generation, as well as industries including food processing and iron and steel manufacturing. Government policy mandating loans to agriculture increases this exposure. Equity investors are less exposed due to the absence of agricultural companies in the Bombay Stock Exchange (BSE).

Industrial sectors together account for 28% of all natural capital costs financed, while representing 43% of credit disbursed. The majority of unpriced natural capital costs within industry occur within the food processing industry, which accounts for 12% of natural capital costs financed by banks due to the high water consumption of its agricultural supply chain. The power sector, represents 5% of the natural capital costs financed by banks due to greenhouse gas emissions associated with coal-fired power generation.

 

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