The Australian Prudential Regulation Authority (APRA
) has warned insurers and banks that failing to prepare for climate-related risks could threaten their stability.
The prudential watchdog delivered the cautionary message during a speech to the Centre for Policy Development in Sydney, where it said that climate change's impact was not just ecological, but also economic.
"The sustainable insurance forums view, which APRA
shares, is that climate change — and here's the crucial bit — societies' response to it, are starting to affect the global economy," Geoff Summerhayes, an executive board member of APRA
, said in an ABC report
Summerhayes cited as an example Cyclone Debbie, which devastated parts of northern Queensland earlier this year and resulted in $1.6bn in insurance losses.
"Should extreme weather events become more frequent and intense, as scientists predict, this type of adverse economy impact will become magnified and more common," Summerhayes said. "Consequently, raising awareness about climate risks and the need for resilience is entirely within APRA
's regulatory mandate of promoting financial system stability, and in the interests of deposit-holders, policyholders, and superannuation fund members."
Already, the prudential regulator has mobilised its Climate Change Financial Risk Working Group to question entities about their preparedness against climate change-related risks – a disclosure process Summerhayes predicted would become a major trend in global regulation, ABC reported
, we're planning a survey of regulated entities to gain a better understanding of emerging best practice, as well as an industry-wide review of climate-related disclosures," Summerhayes said, adding that Australia is also quickly transitioning to a low-carbon economy.
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