APRA and RBA in climate change partnership

The Australian Prudential Regulation Authority (APRA) and Reserve Bank of Australia (RBA) have come together to assess how the financial system can manage the risks of climate change.

Climate-related risks would be integrated into financial stability supervision and micro-supervision and APRA was leading a climate vulnerability assessment with the five largest Australian banks.

The objective of this was to assess potential finance exposure to climate risk, understand how banks could adjust business models and implement management actions and foster improvement in climate risk management capabilities.

Meanwhile, the RBA would monitor the implications to the economy and financial markets and how climate risks translated into risks to financial stability.

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“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,” the joint statement said.

Both organisations would also enhance their training programs to equip staff with the necessary skills on climate-related risks and APRA was finalising a prudential practice guide which would provide guidance on the management of financial risks arising from climate change. This would cover governance, risk management, scenario analysis and disclosure.

“APRA and the RBA are also committed to minimising the impact of their activities on the environment in other ways, such as through increasing the use of energy efficient equipment and renewable energy, reducing waste arriving in landfill and promoting sustainable and efficient water use,” the statement said.