APRA and RBA release joint climate change statement

The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) have released a combined statement on the risks posed by climate change and the global transition to a lower emissions economy on financial institutions and financial stability.

This follows the commencement of the 2021 United Nations Climate Change Conference (COP26) in Glasgow earlier this week and the Australian Government’s last-minute announcements of the plan to reach net zero emissions by 2050.

In the statement, APRA highlighted the importance for financial institutions to recognise and integrate climate-related risks, including the potential impacts of physical, transition and liability climate risks, into financial stability monitoring and micro-supervision practices.

APRA outlined its goals to finalise its guidance to assist entities in the identification, monitoring and management of any climate-related risks they are exposed to. The guide is informed by stakeholder consultation and provides direction on the management of financial risks associated with climate change in the areas of governance, risk management, scenario analysis and disclosure.

“Alongside this guidance, APRA is considering a periodic climate risk self-assessment survey to assist in understanding the financial sector’s alignment to the guidance,” the statement said.

The RBA has taken responsibility for analysing and monitoring the implications of climate change for the economy and any effects it has on the diffusion of monetary policy through financial markets and banking systems to households and businesses.

“The RBA will also continue to augment its forecasting models and its broader suite of macroeconomic models to understand the macroeconomic implications of different climate risks, including how climate risks translate into financial stability risks,” the statement said.

The RBA also said it will use climate scenarios derived from the Network for Greening the Financial System (NGFS) in its internal analysis, in order to bridge data and information gaps regarding climate risks and improve the ability of regulatory authorities and financial institutions to assess climate-related risks.

APRA and the RBA’s collaboration will focus on increasing the awareness and intellectual capacity of regulatory agencies and financial institutions through providing training programs and making shared knowledge bases available.

Both authorities also restated their commitment to continue integrating sustainability factors into their own operations, by investing in green bonds, working on publishing climate-related financial disclosures, increasing their energy efficiency, and promoting sustainable water use.