Market reactions to the central bank’s mandate on climate-related financial risk disclosures: Evidence from the Indian banking sector

• Average event-day impact is significantly negative at -1.33%. • Private banks show a sharper drop of -1.44% on event day. • Public banks show an insignificant event-day effect (-1.08%). • High ESG-performing banks face greater market penalties. • Larger, financially stronger banks perform comparatively better. This study examines financial markets’ reactions to regulatory efforts addressing climate-related financial risk in low- and middle-income countries. The findings reveal a significant negative event-day impact (-1.33%) and negative post-event abnormal returns. Private-sector banks experience a significant event-day impact (-1.44%), in contrast to an insignificant effect on public-sector banks (-1.08%). Banks with high ESG performance experience a greater decline, emphasizing that the market penalizes excessive weight for ESG issues unrelated to core operations. Additionally, larger banks with better financial performance perform better. These findings highlight the challenges low- and middle-income countries face in integrating climate policies without destabilizing financial markets.