The Reserve Bank of Australia and the Australian Prudential Regulation Authority have made a joint commitment to draw attention to the financial stability and macroeconomic consequences of climate change.
Noting the risk posed by climate change to financial stability, the RBA and APRA have issued a joint pledge, as part of the Network for Greening the Financial System (NGFS), vowing to take heed of climate risks in their respective mandates.
“The physical impact of climate change and the global transition to a lower emissions economy, will affect economic output, prices and employment,” the RBA and APRA said in a joint statement.
“APRA and the RBA will continue to draw attention to the financial stability and macroeconomic consequences of climate change, including through speeches and by publishing analytical work on climate change,” the pair said.
APRA noted its current work in assessing the preparedness of ANZ, Commonwealth Bank, Macquarie Bank, NAB and Westpac to climate risk, using scenarios from the NGFS that have been adapted for Australia.
“APRA considers that effective decision-making by financial institutions needs to include a full consideration of risk, including the potential impacts of physical, transition and liability climate risks,” the statement said.
The RBA confirmed it is assisting APRA with this exercise, with results expected to be published next year.
Moreover, APRA is expected to finalise its prudential guidance to assist entities in identifying, monitoring and managing climate-related risk later this year, including guidance on governance, risk management, scenario analysis and disclosure.
The RBA also highlighted its analysis into the effects of climate-related risks on the Australian economy and financial stability.
“The RBA will conduct analysis to monitor the implications of climate change and related mitigation policies for the economy and the transmission of monetary policy through financial markets and the banking system to households and businesses,” the statement said.
“The RBA commits to using the information obtained from this analysis to inform its work on bridging data gaps in relation to climate risks, in order to improve the ability of regulatory authorities and financial institutions to assess climate-related risks and opportunities.”
Both the RBA and APRA are expected to share knowledge with other central banks and regulators, while working to minimise the environmental impacts of their own operations.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
