APRA to increase climate scrutiny

The Australian Prudential Regulation Authority (APRA) has announced it will be increasing its scrutiny of how banks and other major financial institutions manage their financial risks of climate change to their businesses.

The announcement comes after the authority released its first climate risk survey of financial institutions, and is calling on the sector to increase its action against climate change risks.

APRA surveyed 38 large financial institutions last year to assess their views and practices in relation to climate related financial risks, and concluded that the substantial majority of those surveyed were taking steps to increase their understanding of the threat posed by climate change.

APRA Executive Board Member Geoff Summerhayes said APRA had a responsibility to ensure financial institutions were alert to issues that could impact their ability to fulfil promises to customers. “The world is rapidly transitioning to a low carbon economy, driven principally by the decisions of governments, business leaders, investors and consumers. Companies that fail to respond to these forces risk being left behind. “Gaining an understanding of the risks is an important first step for entities, but APRA wants to see continuous improvement in how organisations disclose and manage these risks over coming years. “APRA expects that climate risks be assessed within existing prudential risk management standards CPS 220 and SPS 220, and supervisors will be factoring this into their ongoing supervisory activities,” Mr Summerhayes said.

Other key findings were:

  • A third of respondents believed climate change was a material financial risk to their businesses now and a further half thought it would be in future;

  • A majority of banks considered climate-related financial risks as part of their risk management frameworks; and

  • Reputational damage, flooding, regulatory changes and cyclones were nominated as the top climate-related financial risks.

More information on the survey can be found here

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