Big banks and super funds to face climate change risk checks


He said APRA’s 2018 climate change survey had highlighted that many large entities understood the financial risks and opportunities from a changing climate, however there was a need to address the industry wide “climate data deficit” to quantify the likely impact of the physical, transitional and liability risks of climate change.

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Banks are expected to engage in “stress testing” as part of their risk management, to enhance their readiness to withstand adversity by improving their understanding of risk and reduce the likelihood of failure.

Mr Summerhayes said regulators and supervisors around the world were developing responses to the climate data deficit.

He said the “climate change financial risk vulnerability assessment” would be designed this year and begin in 2021, starting with banks. Other industries such as insurance and super funds would follow.

“Looking ahead, the financial risks of climate change will continue to be a focus of APRA’s efforts to increase industry resilience, and more supervisory attention is being given to understanding these risks,” he wrote.

Investor Group on Climate Change chief executive officer Emma Herd said other important financial regulators such as the Reserve Bank and ASIC had also recognised climate change presents a material risk to Australia’s economic prosperity.

“Meeting the goals of the Paris Agreement will significantly de-risk the Australian economy by
guarding against the ratcheting physical and financial impacts of climate change such as
worsening extreme weather, rising insurance premiums and the prospect of stranded assets,” Ms Herd said.

“A recent report from the Investor Group on Climate Change shows many long-term investors
are already factoring in climate change risks and net-zero emissions scenarios into their
investment decisions and in their engagement with listed companies. This trend will continue.”

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