The Australian Prudential Regulation Authority (APRA) has published results from its second climate risk self-assessment survey, offering a closer look at how financial institutions are managing climate-related financial risks.
This year’s voluntary survey, following a smaller 2022 assessment, invited all APRA-regulated banks, insurers, and superannuation trustees to participate, with more than half responding.
Results largely met APRA’s expectations, though gaps persist in climate risk maturity, especially among smaller entities.
While larger entities showed progress, with many improving in climate risk maturity since 2022, one-quarter experienced a decline.
Larger banks saw an increase in risk maturity, but insurers and superannuation trustees remained steady. Strengths emerged in governance and risk management, though disclosure and setting metrics showed room for improvement.
Mature governance structures tend to be present in entities where climate risk is embedded into risk management practices. Some institutions have started incorporating related issues, like nature risks and transition plans.
APRA member Suzanne Smith (pictured above) noted the broad impacts of climate change on financial systems.
“Climate change not only has wide-ranging impact on our planet but can also exacerbate existing vulnerabilities...,” Smith said in a media release. “This contributes to increased risk in the financial system that can reduce financial institutions’ ability to effectively provide key financial services.”
Smith emphasised APRA’s encouragement for all entities to reflect on these findings and adopt leading practices in managing climate risks as expectations continue to rise.
APRA’s 2024-25 Corporate Plan indicated plans to heighten its expectations around climate risk.
APRA intends to incorporate climate risk within prudential standards CPS 220 and SPS 220, with consultations planned for 2025.
The full survey findings are available on APRA’s website under "Climate Risk Self-Assessment Survey 2024".
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