Carbon Accounting for Banking and Financial Services in India

Carbon Accounting for Banking and Financial Services in India

India's banking sector is undergoing a rapid sustainability transformation. With major institutions like State Bank of India (SBI), HDFC Bank, ICICI Bank, and Axis Bank all featuring in the SEBI top 1000 list of companies, regulatory scrutiny on environmental performance has intensified significantly. These lenders control trillions of rupees in assets and must now account for their direct emissions alongside the carbon footprint of their lending portfolios - a challenge that demands robust carbon accounting frameworks tailored to India's financial landscape.

Understanding Emissions in Indian Banking

The Indian banking sector's carbon footprint extends far beyond office electricity consumption. While direct emissions from headquarters and branch operations remain measurable, the true climate impact lies in financed emissions - the greenhouse gases embedded in loans and investments made by these institutions.

Direct and Indirect Emissions: Scope 1 and 2

Indian banks typically report Scope 1 emissions from fuel combustion in vehicles and backup generators, though these are relatively modest. Scope 2 emissions - primarily from purchased electricity - represent a more significant footprint, especially for data centres that power modern banking infrastructure.

Data centres in India consume substantial electricity to maintain 24/7 operations across millions of customer accounts. As digital banking accelerates, energy consumption per transaction has become a key efficiency metric that banks must track and optimize.

Business Travel and Scope 3 Emissions

Employee business travel generates considerable Scope 3 emissions, particularly for senior management attending board meetings, regulatory engagements, and client interactions across India's geographically dispersed branches.

However, business travel pales in comparison to another Scope 3 category: financed emissions from lending portfolios. This represents the fastest-growing focus area for Indian financial institutions.

Financed Emissions: The Real Climate Impact

Financed emissions, or Scope 3 Category 15, capture the greenhouse gases attributable to loans and investments made by banks. A coal mining company funded by an Indian bank's Rs 500 crore loan creates emissions that extend far beyond the bank's own operations - yet these emissions directly result from the bank's capital allocation decisions.

For Indian banks, financed emissions typically originate from:

• Heavy industries: Steel, cement, and aluminum manufacturing
• Fossil fuel extraction: Coal mining and oil refining
• Energy utilities: Thermal power generation
• Transportation: Fleet operations and logistics companies
• Real estate development: Commercial and residential construction

The Reserve Bank of India has increasingly emphasized the climate risk embedded in these lending portfolios, recognizing that stranded assets and climate-related credit losses pose systemic financial stability risks.

BRSR Requirements for Indian Banks

The Business Responsibility and Sustainability Report (BRSR) framework, now mandatory for SEBI-listed companies, requires comprehensive environmental disclosures. For banks, this includes detailed reporting on both direct operations and financed emissions.

RBI Climate Disclosure Framework (2024)

In 2024, the RBI released its Disclosure Framework on Climate-related Financial Risks, establishing expectations for Indian banks to publicly disclose:

• Governance structures for climate risk management
• Climate scenario analysis outputs
• Quantified metrics for climate-related credit risk
• Transition finance and green lending volumes
• Physical risk exposure by geography and asset class

This framework integrates seamlessly with BRSR requirements and positions Indian banks as leaders in climate-aware capital allocation.

BRSR Governance and Board Oversight

Banks must establish dedicated governance bodies - typically Board-level committees - to oversee climate risk and carbon accounting. BRSR mandates disclosure of climate commitments, interim targets, and progress against science-based goals aligned with India's Nationally Determined Contributions (NDCs).

PCAF India: Standardizing Financed Emissions Accounting

The Partnership for Carbon Accounting Financials (PCAF) provides the gold-standard methodology for calculating financed emissions. In India's context, PCAF enables banks to convert lending portfolio data into comparable carbon metrics using standardized calculation approaches.

Applying PCAF to Indian Loan Portfolios

Indian banks increasingly use PCAF methodologies to map financed emissions across their loan books by sector, geography, and borrower size. This granular visibility allows lenders to:

• Identify high-carbon concentration in portfolios
• Set science-based financed emissions reduction targets
• Price climate risk into lending decisions
• Support borrowers through decarbonization pathways

Large institutions like SBI and HDFC have begun mandatory PCAF implementation across material lending segments, with smaller banks following rapidly.

Green Finance and ESG-Linked Lending

Carbon accounting data directly supports India's priority sector lending framework and ESG-linked lending products. Banks increasingly offer:

• Green mortgages: Lower rates for energy-efficient residential properties
• Sustainable business loans: Discounted pricing for companies meeting carbon reduction targets
• Green bonds: Funding mechanisms for renewable energy and efficiency projects

This alignment between carbon data and lending decisions strengthens both climate outcomes and risk-adjusted returns.

What BRSR Disclosures Do Indian Banks Need to Make?

Indian banks must disclose governance structures, climate strategies, quantified emissions (Scope 1, 2, and 3 financed emissions), and progress against reduction targets in their BRSR reports. What is BRSR Reporting? provides detailed guidance on specific disclosure obligations by business function.

What Are Financed Emissions and How Do Indian Banks Calculate Them?

Financed emissions represent the carbon footprint of loans and investments held in a bank's portfolio. Indian banks calculate these using PCAF methodologies, which typically involve multiplying loan amounts by sector-specific carbon intensity metrics, or where available, by borrower-specific emissions data from sustainability reports.

What Is the RBI Climate Disclosure Framework?

The RBI's 2024 Climate Disclosure Framework requires Indian banks to publicly report governance arrangements for climate risk, quantified climate risk metrics, and climate scenario analysis results. BRSR vs ESG explains how this framework integrates with broader ESG reporting standards.

How Does PCAF Apply to Indian Banking?

PCAF provides standardized methodologies for converting Indian banks' loan portfolio data into financed emissions metrics. Banks use PCAF calculation approaches appropriate to their data availability - from borrower-specific emissions disclosure (most accurate) to sector-level carbon intensity benchmarks (when borrower data is unavailable).

Conclusion

Carbon accounting for Indian banking is no longer discretionary - it is foundational to modern risk management and regulatory compliance. As BRSR mandates tighten and RBI expectations crystallize around climate-related disclosures, institutions that invest in robust carbon accounting platforms like Greenio gain competitive advantages in risk pricing, stakeholder trust, and capital allocation decisions. The convergence of BRSR requirements, PCAF methodologies, and green finance innovation is reshaping how India's banking sector measures, manages, and mitigates climate risk across portfolios worth billions of rupees.