The Australian Prudential Regulation Authority will release a prudential practice guide on the management of climate-related financial risks in the next few months.
At the same time it is preparing to start a program of “climate vulnerability assessments” of major Australian banks. It is working with ASIC and the Reserve Bank on what is calls a “first of its kind” assessment.
The “cross-industry” practice guide will be released for consultation by the middle of the year and be finalised by the end of the year.
APRA said prudential practice guides are not legally binding regulations. They are designed to be helpful guidance as to how regulated entities can fulfil their prudential obligations.
The regulator said it has drawn on aspects of the work of the Task Force on Climate-related Financial Disclosures, which was set up by the Financial Stability Board in 2015.
It said another influential forum is the Network for Greening the Financial System, a group of 83 central banks, standard-setting bodies and financial regulators.
The climate vulnerability assessments are aimed at understanding the vulnerability of institutions and how they can adjust their business models in response to the challenges proposed by different scenarios.
They will be progressively rolled out across the whole banking industry and the insurance and superannuation industries.
APRA has made its view clear for a number of years that climate-related risks are financial in nature and that they are “foreseeable, material and actionable”.
It said it wants to prompt regulated entities “to move more swiftly from awareness to action, to ensure these institutions are equipped to adapt and respond to the substantial changes in the international economic and regulatory environment that are in train”.
“Although all parts of the economy will be impacted by climate-related risks and the global response to it, the finance sector will have a central role to play in responding to the challenge, from financing physical infrastructure to adapt to climate change, to investing in long-term decarbonisation opportunities,” it said.