Climate change risks to now be accounted for in Australia’s financial system


The Australian government has made it compulsory for the APRA to take into account climate change-related risks in its operations.

The new directive, detailed in an updated Statement of Expectations for APRA, will require the regulatory body to “promote prudent practices and transparency in relation to climate-related financial risks” and to endorse climate reporting standards amongst regulated entities.

Australian Treasurer, Jim Chalmers, highlighted that this marks the first time the government is expressly obligating the regulator to account for climate change-related risks in its duties. The newly issued statement aligns with the government’s launch of a consultation paper in December 2022. The paper focused on developing a climate risk disclosure framework for companies and financial institutions, with the intention of making such reporting compulsory for large-scale entities.

The government’s drive towards climate risk awareness recognises physical and transition climate-related risk as a significant threat to global financial stability. Disclosure is seen as a crucial tool in managing that risk. Additionally, the Treasury department has been entrusted with crafting a comprehensive sustainable finance strategy, where climate risk disclosure forms a key aspect.

APRA has already commenced initiatives to evaluate climate risk elements within the financial system. Recent undertakings include its inaugural Climate Vulnerability Assessment (CVA) with the five largest banks in the country. The assessment scrutinised the projected financial impact of climate change on these institutions and their prospective responses to physical and transition climate risks.

Jim Chalmers, Australian Treasurer said, “For the first time, the government is explicit in requiring the regulator to consider risks related to climate change as part of its work.”

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