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- The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) join forces to investigate climate change risks in the financial sector
- APRA and the RBA have been increasing capacity to do analysis and research on these problems
- APRA is leading a bottom-up supervisory climate vulnerability assessment (CVA) exercise with the five major Australian banks under its supervision
- In 2021, APRA will finalise prudential recommendations to help supervised organisations in identifying, monitoring and managing climate-related risks
The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) will jointly investigate how the financial sector can handle climate change risks.
Both APRA and the RBA have been increasing capacity to do analysis and research on these problems, and they are actively exploring how to accomplish their separate mandates in light of climate-related concerns.
APRA is leading a bottom-up supervisory climate vulnerability assessment (CVA) exercise with the five major Australian banks under its supervision, utilising network for greening the financial system (NGFS) scenarios that have been customised to investigate Australian-specific situations as a foundation.
The CVA has three main goals: identify possible financial exposure to climate risk, understand how banks may adapt business models and undertake management activities in response to different scenarios, and stimulate progress in climate risk management skills.
In 2021, APRA will finalise prudential recommendations to help supervised organisations in identifying, monitoring and managing climate-related risks.
The prudential practise guide, which was driven by stakeholder input, provides recommendations on prudent practise in the management of financial risks associated with climate change, including governance, risk management, scenario analysis, and transparency.
In addition to this guideline, APRA is contemplating conducting a quarterly climate risk self-assessment survey to better evaluate the financial sector’s adherence to the guidance.
The RBA will conduct research to assess the economic effects of climate change and related mitigation strategies, as well as the transmission of monetary policy through financial markets and the banking system to people and companies.
The RBA will also continue to improve its forecasting models and its larger suite of macroeconomic models in order to better understand the macroeconomic implications of various climate hazards, such as how climate concerns translate into financial stability issues.
“APRA and the RBA will continue to draw attention to the financial stability and macroeconomic consequences of climate change, including through speeches and by publishing analytical work on climate change,” the two bodies said in a statement.
