APRA-regulated entities are generally aligning well to the prudential regulator’s guidance, especially in the areas of governance and disclosure, but only a few indicate that they have fully embedded climate risk across their risk management framework.
This was according to APRA’s latest climate risk self-assessment survey, which was designed to provide insights into how APRA-regulated entities are aligning their practices with the expectations set out in Prudential Practice Guide CPG 229 Climate Change Financial Risks.
Released last November, CPG 299 offers guidance on how APRA-regulated entities can manage the financial risks and opportunities that may arise from a changing climate.
Key observations based on the entities’ self-assessments showed that four out of five boards oversee climate risk on a regular basis, while just under two-thirds of institutions (63%) have incorporated climate risk into their strategic planning process. Nearly 40% of institutions, meanwhile, see climate-related events as something that could have a material or moderate impact on their direct operations.
Findings also showed that 73% of institutions had one or more climate-related targets in place, but 23% do not have any metrics to measure and monitor climate risks. Meanwhile, 68% of institutions have publicly disclosed their approach to measuring and managing climate risks, with 90% of those aligning their disclosure to the Taskforce for Climate-related Financial Disclosures (TCFD) framework.
APRA Deputy Chair Helen Rowell said that while the findings are encouraging, more work still needs to be done.
“Climate change and the global response to it are creating financial risks for banks, insurers, and superannuation trustees, whether it be the physical damage from floods or bushfires, or asset price volatility as consumer and investor demands evolve,” Rowell said. “The guidance in CPG 229 is aimed at helping our regulated entities identify and manage these risks, as well as being alert to opportunities to strengthen their businesses. 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. 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.”
For copies of the survey findings, visit the APRA website on Information paper - Climate risk self-assessment survey.
