Global financial sector moving fast on climate change risk

The global financial system is moving rapidly in response to the potential impacts of climate change, as was predicted late last year by Geoff Summerhayes of the Australian Prudential Regulation Authority (APRA) in his speech, The Power of Money.

The international Central Banks and Supervisors Network for Greening the Financial System (NGFS), launched at the Paris One Planet Summit on 12 December 2017, held its inaugural meeting on 24 January 2018, agreeing on a work programme which includes identification of best practices on the supervisory and macrofinancial dimensions of climate-related and environmental risks as well as on options to scale up green financing. The Network will meet again at a high-level conference focused on climate risk management and supervision on April 6th 2018 in Amsterdam.

The Financial Stability Board (FSB), an international body established to coordinate national financial authorities and international standard setting bodies, has recommended a set of voluntary consistent disclosures to help lenders and insurance underwriters manage climate-related risks, covering governance, strategy, risk management and metrics. The FSB report is here.

Mark Carney, the Governor of the Bank of England (a member of the NGFS) and also chair of the FSB, has warned that investors currently lack the information they need to respond to climate change risk, and that more information in financial markets will be necessary if capital is going to be allocated to manage that risk. The Bank of England has responded by initiating an internal review of climate-related risks in the UK banking sector and has published a statement on its own response.

In Australia, Dr Philip Lowe, Governor of the Reserve Bank of Australia, recently told the Standing Committee on Economics that the Council of Financial Regulators, which he chairs, established a working group involving APRA, ASIC, the RBA and Treasury late last year consider issues about managing climate risk. He said the working group was looking at disclosure and other matters raised in the FSB document.

Climate adaptation and risk management in the Australian context will be a key theme of the forthcoming Climate Leadership 2018 Conference in Sydney on March 15-16.

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