Australian Prudential Regulation Authority gives directors responsibility for managing climate change risk

“When an institution has identified significant climate risks, a prudent institution would establish and implement plans to mitigate those risks and manage its exposures, as well as regularly review and assess the effectiveness of those plans,” the final guide to prudential practices (CPG 229). said.

APRA recognizes that “how and when specific climate risks will materialize is uncertain,” but states that “there is a high degree of certainty that certain financial risks will materialize as a result of climate change. An institution can mitigate the magnitude of the impacts of these financial risks through governance, risk management, scenario analysis and disclosure.

Significant risk response

APRA said the guide did not contain any new regulatory requirements or obligations, but would help institutions define processes to “discuss, clearly define the roles and responsibilities of senior management in climate risk management.” He wants them to start using it immediately.

The guide says that in order for boards to fulfill their role under the APRA prudential governance standard, they must ensure that “when climate risks are significant, the framework of appetite for governance institution risk incorporates risk exposure limits and thresholds for financial risks. that the institution is ready to support ”.

APRA President Wayne Byres highlighted COP26 and the federal government’s commitment to net zero emissions by 2050 and said it created financial risks for businesses to be prepared for.

“Most of the entities regulated by APRA recognize the potential challenges of climate change, such as future changes in consumer and investor demand, emerging technologies, new laws or adjustments in asset values, but they don’t always fully understand how to react, “he said.

APRA received nearly 50 guidance submissions; some have called for a higher level of prescribing compared to the draft guidance first released in April.

APRA also conducts “climate vulnerability assessments” on major banks and Macquarie.

In overseeing the financial transition, Byres said APRA was guided by its core responsibility to protect deposit holders.

The APRA guidelines were released an hour before ANZ Bank updated the market on its oil and gas lending policy in a special ESG briefing.

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