Australia’s financial services regulator, the Australian Prudential Regulation Authority (APRA), announced today the release of the results of a climate risk survey of the financial services sector, indicating that most institutions have not yet fully embedded climate risk across their risk management framework.
The self-assessment survey was conducted across Australia’s banking, insurance and superannuation industries, and followed APRA’s release last year of its final prudential practice guide, CPG 229, aimed at assisting institutions in managing the financial risks of climate change.
In its statement announcing the results, APRA said that the survey indicated that financial market participants are generally aligning well with the CPG 229 guidance, although climate risk “remains an emerging discipline compared to other traditional risk areas.”
A key area for improvement highlighted by the report is metrics and targets, with most institutions reporting that they measure and monitor climate risks using quantitative or qualitative approaches and set targets, but only limited use of more advanced metrics, such as Scope 3 and financed emissions. 23% of institutions do not have any metrics to measure and monitor climate risks.
APRA Deputy Chair Helen Rowell said:
“The survey findings indicate that most survey participants are taking this issue seriously, however they also underline that this remains a relatively new and evolving area of risk management, especially with regards to setting metrics and targets.”
The survey found that while approximately 80% of boards oversee climate risk on a regular basis, more than a third (37%) have not have incorporated climate risk into their strategic planning process.
On the reporting front, more than two-thirds of respondents said that they have publicly disclosed their approach to measuring and managing climate risks, with 90% of those aligning disclosures with the TCFD framework. Overall, the report indicated that while “many institutions are publicly disclosing their approach to measuring and managing climate risks, the quality and comprehensiveness of disclosures vary, and institutions need to be prepared for rapidly increasing expectations.”
Rowell added:
“With stakeholder expectations on climate risk only going to rise further in coming years, we urge all regulated entities – not only those involved in the survey – to consider the findings and reflect on their preparedness.”
Click here to access the APRA report.
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