The Australian Prudential Regulation Authority (APRA) has announced it intends to increase its interest in the extent to which the Australian financial sector includes the risk of climate change in its activities.
Releasing the results of its first climate risk survey of regulated entities, APRA called on entities to move from gaining awareness of the financial risks to taking action to mitigate against them.
Executive Board Member at APRA, Geoff Summerhayes said the Authority had surveyed 38 large banks, insurers and superannuation trustees last year to assess their views and practices related to climate-related financial risks.
“The survey found a substantial majority of regulated entities were taking steps to increase their understanding of the threat, including all of the banks, general insurers and superannuation trustees surveyed,” Mr Summerhayes said.
He said other key findings in the survey included that 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 the future, while a majority of banks considered climate-related financial risks as part of their risk management frameworks.
Reputational damage, flooding, regulatory changes and cyclones were nominated as the top climate-related financial risks, he said.
Mr Summerhayes said respondents also described the strategic opportunities they had identified from the transition to a low carbon economy, including developing innovative products and services, and meeting the growing demand for green investment opportunities.
He 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,” Mr Summerhayes said.
“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.”
