Australia’s prudential regulator has informed all regulated entities that it will be undertaking deeper assessments of the financial industry’s vulnerabilities to climate change in an effort to improve resilience. 

Read more:  APRA to banks, insurers: Act on climate risk

In a letter to all regulated entities, the Australian Prudential Regulation Authority (APRA) said it will conduct “vulnerability assessments” to better understand the financial impact of climate change on the country’s largest financial institutions. It also plans to develop an industry guidance to provide better clarity on regulatory expectations in relation to climate-related financial risks. 

APRA’s Geoff Summerhayes said, “The financial risks of climate change will continue to be a focus of APRA’s efforts to increase industry resilience, and more supervisory attention is being given to understanding these risks… This includes deeper supervisory assessments...,” Reuters reported.

The assessment will be designed this year and executed in 2021, starting with banks and followed by other industries, such as insurance and pension funds.

Summerhayes said the assessment will involve entities estimating the potential physical impacts of a changing climate on their balance sheet, as well as the risks that may emerge from the global shift to a low-carbon economy. 

“Effective action now on these fronts will promote strong understanding and management of the potential financial impacts of a changing climate on current and future business prospects, allowing well-managed entities to minimise costs and optimise benefits,” Summerhayes said in the Reuters report.