APRA guidance offers support on tackling climate-related financial risks

The Australian Prudential Regulation Authority (APRA) has issued a draft practice guide to banks, superannuation trustees and insures on managing climate-linked financial risks.

 According to Regulation Asia, the draft prudential practice guide (PPG 229) was developed in response to requests from industry for greater clarity of regulatory expectations and examples of better industry practice for managing the financial risks of climate change.

The APRA draft consultation states boards and institutions may face potential liability risks if they fail to acceptably consider and respond to climate change impacts. The guidance covers APRA’s stance of sound practice in areas such as risk management, scenario analysis, disclosure and governance.

The regulatory authority claims the guidance is designed with ‘flexibility in mind’, in order for organisations to adopt an approach appropriate for its size, business strategy and customer base.

The draft CPG 229 will remain open for comment until July 31 this year. A final practice guide is expected to be released before the end of 2021.

APRA chair Wayne Byres said, “The prudential practice guide doesn’t direct or prevent APRA-regulated entities making any particular business or investment decision. Rather, it is aimed at ensuring decisions are well-informed and appropriately consider both the risks and opportunities that the transition to a low carbon economy creates.”

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