The Australian Prudential Regulation Authority (APRA) is seeking industry feedback after releasing draft guidance to insurers, banks, and superannuation trustees on managing the financial risks of climate change.
The regulator developed the draft guidance, Prudential Practice Guide CPC 229 Climate Change Financial Risks (CPG 229), in response to calls for greater clarity of regulatory expectations and examples of better industry practice. It designed the draft to assist APRA-regulated entities in managing climate-related risks and opportunities as part of its existing risk management and governance frameworks.
The guidance covers the regulator's view of sound practice in governance, risk management, scenario analysis, and disclosure. However, it does not create new requirements or obligations as it was designed to be flexible in allowing institutions to adopt an appropriate approach for their size, customer base, and business strategy.
APRA chair Wayne Byres emphasised the significance of preparing to respond to financial risks, whatever form they may take.
“Since the Australian government became a party to the Paris Agreement, APRA has been raising awareness of climate-related risks to the financial sector. Given the unique and long-term nature of the risks, however, processes to measure, monitor, and manage climate-related financial risks are still developing,” Byres said.
“The prudential practice guide doesn't direct or prevent APRA-regulated entities making any particular business or investment decision. Rather, it is aimed at ensuring decisions are well-informed and appropriately consider both the risks and opportunities that the transition to a low carbon economy creates.”
The guide is aligned with the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD).
APRA is seeking stakeholder feedback on the draft CPG 229 until July 31, 2021. It expects to release the final guide before the end of the year.
