APRA issues final climate change policy guidelines

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APRA issues final climate change policy guidelines

Climate change, APRA, banking regulator, guidance, recommendation, carbon emissions, financial risks
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Highlights

  • APRA issues final recommendations to help banks, insurers, and superannuation trustees in managing financial risks linked to climate change, without imposing any new rules.
  • The move to a lower-emissions economy leads to financial risks that businesses must plan for, stated APRA Chair.
  • APRA-regulated entities are directed to use the amended guidelines on an immediate basis to improve their management of climate change financial risks in a way that is best suited for their company and its specific circumstances.

Australia’s banking regulator Australian Prudential Regulation Authority (APRA), on Friday, finalised its guidance to help banks, insurers, and superannuation trustees in managing financial risks linked to climate change, without imposing any new rules.

APRA stated that while the recommendations provided no new regulatory requirements, they will help APRA-regulated businesses manage climate-related risks and opportunities.

The guidance consists of APRA’s perspective on best practices in governance, risk management, scenario examination, and the revelation of climate-related capital concerns. It aims to be adaptable, enabling each institution to use the method in the best interest of its size, client base, and business strategy.

Wayne Byres, Chair of APRA stated that the move to a lower-emissions economy leads to financial risks that businesses must plan for.

He added that though most APRA-regulated entities acknowledge the possible challenges of climate change, like future alterations in consumer and investor demand, developing technologies, new regulations or adjustments in asset values, they don’t always possess a proper understanding of how to react.

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According to APRA, the proposed recommendations were largely welcomed in response to the consultation. However, some stakeholders, have desired a greater degree of prescription in response to concerns that they would lack the essential competencies or resources to manage the financial risks resulting from climate change.

APRA-regulated entities are directed to use the amended guidelines on an immediate basis to improve their management of climate change financial risks in a way that is best suited for their company and its specific circumstances.

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