Assessing Climate Transition Risks Using Scenario Analysis and Stress Testing - Insights for the Reserve Bank of India

This paper explores the challenges and methods for assessing the financial risks posed by the global transition to a green economy, particularly in the context of India. While decarbonisation is essential to meet the Paris Agreement targets, it could destabilise the economy by causing financial losses to carbon-intensive companies, potentially impacting banks' capital and their ability to lend. The Indian government’s decarbonisation targets, such as achieving net zero by 2070 and increasing non-fossil fuel power, expose Indian banks to transition risks.