Climate-related risks and financial institutions

The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) have published a joint statement on the actions they are taking to ensure financial institutions and the Australian financial system are prepared to respond to the financial risks of climate change, including the potential impacts of physical, transition and liability climate risks. Background.

The statement relates to their membership of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). 

The Network’s purpose is to help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development.

The statement acknowledges that the physical impact of climate change, and the global transition to a lower emissions economy, will affect economic output, prices and employment. Climate change will be a driver of change in the value of certain assets and income streams, and therefore poses a risk to financial institutions and financial stability.

APRA is leading a bottom-up supervisory climate vulnerability assessment exercise with the five largest Australian banks under its supervision, using as its basis the NGFS scenarios which are being adapted to explore Australian-specific circumstances.

In 2021, APRA will finalise prudential guidance to assist supervised entities to identify, monitor and manage the climate-related risks they are exposed to.

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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