'Rising temperature may increase probability of default in 30% of agri loan portfolio by 2030': Analysis

New Delhi: Rising temperature and growing threat of climate change may increase default risk in 30 per cent of agri and housing loans portfolio in the next five years, according to an analysis by BCG.

According to the report, the average global temperature has already increased approximately 1.2 degree Celsius versus pre-industrial levels leading to flooding in coastal areas and reduction in agriculture production.

As a result, it said, there has been a drop in per capita income of people impacted by rising extreme weather events.

Almost half of the credit of scheduled commercial banks is significantly dependent on nature and its ecosystem so any natural calamity impacts their bottomline.

By 2030, as per estimates, 42 per cent India's districts are projected to experience temperature rise by up to 2 degree Celsius. So, 321 districts may be affected by temperature rise in the next five years.

However, climate change also provides an opportunity to banks to the tune of USD 150 billion annually to fund energy transition needs of the country as public funding is hugely inadequate to achieve the goal of net-zero by 2070.

"India is committing to sway away from coal and oil in favour of renewable energy. For India to make that difference/transition, an investment of $150-200 billion is required annually. On the contrary, the climate finance in India is somewhere between $40-60 billion creating a gap of $100-150 billion," BCG MD & Partner; APAC and India Leader, Risk Practice Abhinav Bansal said.

"This transition will create a landscape of opportunity however we are very far from the target and we could see it happening by 2030-40 and so forth given that it begins right now," he said.

Pioneers will make the most of it by holding the lion's share of the opportunity, and "we could potentially witness a big scalp up for grabs from the banking context perspective," he added.

Rising climate risks are already impacting the global economy and the business case for collective action is clear, the report titled 'the Cost of Inaction: A CEO Guide to Navigating Climate Risk' said.

Physical risks of climate change are becoming material for businesses, putting significant value at risk, it said, adding, transition risks for businesses are also significant.

To deal with the impact, BCG managing director and senior partner global leader risk and compliance practice Matteo Coppola said banks need to systematically work towards raising awareness about the issue and advising their clients to adopt green technology.

Besides, he said, blended finance should be accelerated so that adequate funds are made available to mitigate the risk.