Module: | KYC, NPAs, Advances & Investment Valuations
Q178: Consider the following statements regarding the classification of climate risks and associated terminology under the RBI regulatory framework:
1. The Reserve Bank explicitly recognizes climate change not merely as a reputational issue, but as a core Prudential Financial risk that must be evaluated over defined short, medium, and long-term horizons.
2. Physical risks refer to the financial losses arising strictly from policy, legal, or technological shifts while transitioning toward a low-carbon economy.
3. "Greenwashing" is defined as the deceptive practice of marketing a financial product's environmental benefits to artificially attract capital for non-compliant activities.
4. Transition risks encompass the direct economic costs resulting from acute extreme weather events and chronic shifts like sea-level rise.
Which of the statements given above is/are correct?
2. Physical risks refer to the financial losses arising strictly from policy, legal, or technological shifts while transitioning toward a low-carbon economy.
3. "Greenwashing" is defined as the deceptive practice of marketing a financial product's environmental benefits to artificially attract capital for non-compliant activities.
4. Transition risks encompass the direct economic costs resulting from acute extreme weather events and chronic shifts like sea-level rise.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is Option A. Statement 1 is correct: The RBI framework officially upgrades climate change from a voluntary ESG concern to a core Prudential Financial risk with direct balance sheet implications, mandating banks to define specific short, medium, and long-term assessment horizons.
Statement 3 is correct: Greenwashing is accurately defined as the deceptive misrepresentation or false marketing of a financial product's environmental impact to attract funds.
The RBI framework aims to eliminate this through strict disclosure, third-party verification, and impact assessment rules.
Statement 2 is incorrect: The definition provided describes "Transition risks" (the financial impact of shifting policies, laws, and technologies toward a greener economy), not Physical risks.
Statement 4 is incorrect: The definition provided describes "Physical risks" (the actual economic damage from acute weather events like floods or chronic shifts like sea-level rise), not Transition risks.
Therefore, only statements 1 and 3 are correct.
Statement 3 is correct: Greenwashing is accurately defined as the deceptive misrepresentation or false marketing of a financial product's environmental impact to attract funds.
The RBI framework aims to eliminate this through strict disclosure, third-party verification, and impact assessment rules.
Statement 2 is incorrect: The definition provided describes "Transition risks" (the financial impact of shifting policies, laws, and technologies toward a greener economy), not Physical risks.
Statement 4 is incorrect: The definition provided describes "Physical risks" (the actual economic damage from acute weather events like floods or chronic shifts like sea-level rise), not Transition risks.
Therefore, only statements 1 and 3 are correct.