Australia requires bank regulators to take climate risk into account and adopt climate reporting standards

The government of Australia announced that it is for the first time mandating Australia’s financial regulator, the Australian Prudential Regulation Authority (APRA), to incorporate climate change-related risks as part of its role.

The new requirement, released as part of an updated Statement of Expectations for ARPA, includes “promoting transparency in relation to financial risks and the adoption of climate reporting standards,” according to a statement by Australian Treasurer Jim Chalmers.

The new Statement of According to the new statement, the government will now expect APRA to “promote prudent practices and transparency in relation to climate-related financial risks and the adoption of climate reporting standards by regulated entities.”

The new statement follows the government’s launch in December 2022 of a consultation paper on the development of a climate risk disclosure framework for businesses and financial institutions, with plans to make the reporting rules mandatory for large entities, and stating that it recognizes physical and transition climate related risk “as a material risk to the global financial risk,” with disclosure forming a key tool in managing that risk. The government also tasked the Treasury department to develop a comprehensive sustainable finance strategy, with climate risk disclosure forming a part of the strategy.

APRA has already started initiatives to assess climate risk factors in the financial system, including recently conducting its first Climate Vulnerability Assessment (CVA) with the country’s five largest banks, which modelled the estimated future financial impact of climate change on their businesses, and their potential responses to physical and transition climate risks.
In response to the government’s new expectations, APRA released a statement of intent, including a statement that the regulator “will continue to promote prudent practices and transparency in relation to climate-related risks in the Australian financial system, consistent with the Government’s sustainable finance reforms.”

About the Authors

Associate Director, Investment Banking

Prachurjya has over 16 years of experience in investment banking with Acuity Knowledge Partners. At Acuity, he has led sector and product-specialist pilot teams across Capital Markets, ESG, Debt Advisory, Loan Syndications, Metals & Mining and Real Estate. He has been actively involved in setting up and on-boarding new ESG Advisory, ESG DCM and Sustainable Finance teams for various bulge bracket investment banks. Within DCM and Rating Advisory, he has been instrumental in helping the clients achieve over 30% in annual savings on both regular and adhoc tasks through standardization of the outputs and deployment of our proprietary BEAT tools.

Delivery Manager, Investment Banking

Puja has 6 years of extensive experience in ESG, Climate Change & Sustainability and she is supervising the ESG team at Acuity. She also has diverse experience in conducting ESIA, EHS compliance audits, ESG Risks and Controls, EHS & ESG Due Diligence assessments. Prior to joining Acuity, she was working with companies like KPMG Global Services, EY India and ERM India. She has expertise in provisioning extensive research requirements for clients through preparation of Peer Benchmarking, Target Compilation, Sustainability report, Sustainable Finance Updates and Sectoral ESG Thematic Detailing Engagement.

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