Home Supervision Regulation Australian Regulator Finally Outlines Plans for Climate Risk Guidance

Australian Regulator Finally Outlines Plans for Climate Risk Guidance

The Australian Prudential Regulation Authority (APRA) has published a letter to all regulated institutions outlining plans to develop a prudential practice guide focused on climate-related financial risks, as well as a climate change vulnerability assessment. The letter also outlines APRA’s intention to update superannuation Prudential Practice Guide SPG 530 Investment Governance, which includes paragraphs related to ESG investments.

“The effects of a changing climate extend to all sectors of the economy. Those effects are being transmitted directly as well as indirectly, through changing policies, technological developments, investment and consumer preferences. They pose financial risks, as well as provide new business opportunities, to all APRA-regulated entities,” says the letter.

Over the past couple of years APRA has, supported by other agencies of Australia’s Council of Financial Regulators, sought to ensure regulated entities are actively seeking to understand and manage the financial risks of a changing climate just as they would other economic and operational risks. Given the diversity of business models and activities within the regulated sector, the watchdog has not been prescriptive as to how this should be done, nor imposed any particular constraints on specific sorts of business activity, but instead sought to make sure that the effects on businesses from a changing climate – both direct and indirect – have been “actively considered” within entities’ decision making.

The latest letter, following on as it does from the tragic bushfires that so dramatically swept the country, suggests that this approach could now be changing. APRA’s 2018 climate change survey highlighted that many large entities understand the financial risks and opportunities from a changing climate, and described the efforts taken by some entities to embed climate change considerations into risk management frameworks. However, the report also highlighted the need to address the climate data deficit, to quantify the likely impact of the physical, transitional and liability risks of climate change and accurately assess and appropriately price these risks.

“This needs to ultimately be tackled through scenario analysis, stress testing and disclosure of market-useful information. Effective action now on these fronts will promote strong understanding and management of the potential financial impacts of a changing climate on current and future business prospects, allowing well-managed entities to minimise costs and optimise benefits,” says the regulator.

It has also committed to developing and consulting on a climate change financial risk prudential practice guide (PPG). This industry guidance is not intended to establish new obligations, but rather will be designed to assist entities in complying with their existing prudential requirements, including those found in Prudential Standard CPS 220 Risk Management. The cross-industry PPG, relevant to all entities, will set out APRA’s views on better practice and outline prudent practices in this area. The PPG will cover areas relevant to the prudent management of climate change financial risks, aligned with the recommendations of the TCFD, including aspects of governance, strategy, risk management, metrics and disclosure. 

Finally, APRA has promised to undertake a climate change financial risk vulnerability assessment. The assessment will begin with Australia’s largest authorised deposit-taking institutions (ADIs). “Beginning with the ADI industry will provide helpful insights on the impact of a changing climate on the broader economy, which will be analysed in conjunction with the Reserve Bank of Australia,” it says. The ADI vulnerability assessment will be designed in 2020 and executed in 2021, with other industries to follow. This timing also aligns with the expected release of international peer regulator guidance on scenario analysis for the banking sector. 

Most Popular

CALL FOR INTEREST: FAIRR Launches New Investor Engagement Opportunities

US$20 trillion investor network FAIRR is for a limited period opening up two unique engagement initiatives to interested new...

CBI’s Sean Kidney: COVID-19 could teach us how to better respond to the climate change challenge

Join us for the latest Ethical Intelligence Podcast with Climate Bonds Initiative (CBI) CEO Sean Kidney, in which we delve deep...

Shipping and the ‘S’ in ESG

In the second of our three-part ESG in Shipping series, Tony Foster, CEO and Chief Investor Officer of Marine Capital, explores the social...

World Bank launches first sustainable development notes linked to UN Global Compact signatories

WASHINGTON DC: The World Bank today announced plans to issue, for the first time, US dollar-denominated sustainable development notes that provide investors...

UN PRI adds new private equity members

The UN Principles for Responsible Investment (UN PRI) has appointed five new signatory representatives to its private equity advisory committee.

INSIGHT: Get ready for the EU Green Taxonomy with Impact Cubed’s Arleta Majoch

“Sustainability creates the opportunity for a lot of beautiful storytelling – imperfect as the taxonomy may be, it addresses a real need...

UN PRI: Support Sustainable Companies Through the Coronavirus Crisis, Even if it Means Sacrificing Returns

The UN PRI has issued a statement on the ongoing global Coronavirus crisis, in which it urges investors to support sustainable...

Credit Suisse Appoints Phineas Glover Head of APAC ESG Research

Credit Suisse has appointed Phineas Glover as Head of ESG Research for Asia-Pacific, based in Sydney, Australia. Glover joined the bank in April...

World Economic Forum Releases Framework to Help Business Identify ESG Factors for Long-Term Resilience

ESG factors with financial impact on a company can change over time; identifying these factors before they arise is important for...

Rio Tinto Pledges US$1 billion to Climate Change Targets

Rio Tinto, one of the world's largest metals and mining corporations, this week announced plans to invest around US$1 billion over...

Formuepleje Launches New Better World Fund, Hands Management to Impax

Denmark's largest independent asset manager, Formuepleje, has listed the second fund in its Fortune Care Better World universe, following the debut Better...

Shuen Chan To Lead ESG For LGIM Real Assets

LGIM Real Assets (a division of Legal & General Investment Management) has appointed Shuen Chan as Head of ESG, reporting to...

In Other News…

Welcome to your end-of-week round-up for November 18-22, bringing you the 'best of the rest' - all the top stories that didn't...

Aviva Appoints Ed Dixon New Head of ESG, Real Assets

Aviva Investors has confirmed the appointment of Edward (Ed) Vaughan Dixon in the newly created role of Head of ESG, Real Assets.

Ethical Intelligence Partners with Reuters on ESG Investment Summit 2020, Launches First Webinar

Ethical Intelligence is delighted to partner with Reuters for the inaugural ESG Investment Summit Europe, taking place in London on May...
Stay updated

Get the most relevant ESG
updates delivered direct to
your inbox every week.
Sign up now
to the Ethical Intelligence

Stay updated with all the latest ESG news & much more.
Welcome to Ethical Intelligence!  We are delighted you are here, and we hope you enjoy our approach to ESG information.  Just to let you know, we are a subscription site, so you are welcome to read up to 10 of our informative ESG articles with no charge.  After that, we ask you to sign up for one of our very reasonably priced subscription packages.  You can do that via the subscribe button on the main menu below, or from the subscribe page you will see after your 11th article click.
Social Media Auto Publish Powered By : XYZScripts.com