Remember how Morrison government ministers, led by Primary Minister David Littleproud, bashed the ANZ in October 2020 for daring to release an updated climate change statement that outlined plans to prepare for zero net emissions and to meld them into its lending policies?
The move wasn’t groundbreaking and only brought the ANZ in line with major rivals Westpac and the Commonwealth Bank.
But it attracted rebukes from the Coalition government, with three federal ministers issuing statements suggesting boycotts and threatening direct interventions in an attempt to scare the bank out of its new climate change position.
Littleproud, a former NAB branch manager in regional Queensland for 12 years, went so far as to threaten to remove the deposit guarantee from the ANZ.
Well, after a major policy proposal on Thursday from APRA, the key regulator of banks, insurers and other financial market players, you won’t be hearing those comments from a government minister, backbencher or adviser.
Climate change is now a top tier issue for business and politics – as we have seen with prime Minister Morrison’s rapid move towards zero emissions and a target.
APRA has now told banks, insurers and superannuation funds to elevate the impact of climate change to where it ranks alongside other key risks such as credit risk, underwriting risk and liquidity risk. (Insurers like IAG and Suncorp have been worrying about the impact of climate change for several years and warning of the impact climate change is having on their business).
Financial institutions are being asked to recognise climate risks as different to the other risks financial groups face because they may be “irreversible” and “unprecedented.”
APRA said financial groups should respond accordingly, in the guide developed with the assistance of the CSIRO and the Bureau of Meteorology.
APRA said it developed the proposal “in response to requests from industry for greater clarity of regulatory expectations and examples of better industry practice.”
“The guidance covers APRA’s view of sound practice in areas such as governance, risk management, scenario analysis and disclosure.”
APRA made it clear the proposals do not create new requirements or obligations, “and is designed to be flexible in allowing each institution to adopt an approach that is appropriate for its size, customer base and business strategy.”
APRA chair Wayne Byres said in a statement that it was important that APRA-regulated entities were prepared to respond to financial risks, whatever form they may take.
“Since the Australian Government became a party to the Paris Agreement, APRA has been raising awareness of climate-related risks to the financial sector. Given the unique and long-term nature of the risks, however, processes to measure, monitor and manage climate-related financial risks are still developing.
“The prudential practice guide doesn’t direct or prevent APRA-regulated entities making any particular business or investment decision. Rather, it is aimed at ensuring decisions are well-informed and appropriately consider both the risks and opportunities that the transition to a low carbon economy creates,” Mr Byres said.
“The proposals are aligned with the recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, and was developed in consultation with both domestic and international peer regulators.”
The proposals are open for comment and APRA says the final guidelines are expected to be released before the end of 2021.
