Australian bank regulator closes Reuters policy guidelines on climate change

Author: Paulina Duran

SYDNEY (Reuters) – Australian banking regulator on Friday released the latest guidelines for managing financial risks associated with climate change by banks, insurance and pension funds, failing to implement new rules.

The Australian Prudential (NYSE 🙂 Regulatory Authority (APRA) said the principles-based guide is in line with the recommendations of the Financial Stability Commission’s Outreach Group to coordinate rules with rich G20 countries.

“Most APRA-regulated entities recognize the potential challenges of climate change, such as … new laws or adjustments to asset values, but they don’t always fully understand how to respond,” said APRA President Wayne Byres.

The guidance paper followed a draft published for consultation in April and “is a direct response to the call for more clarity on regulatory expectations and examples of better industrial practice,” Byres said.

https://www.apra.gov.au/consultation-on-draft-prudential-practice-guide-on-climate-change-financial-risks calls on financial companies to immediately start managing the risks of climate change within their own risk . management frameworks.

When climate risks are considered material, it requires managers to set “exposure limits and thresholds for the financial risks that the organization seeks to bear”.

Management must also establish clear lines of responsibility in the management of climate-related risks, and company boards must ask senior management for these responsibilities.

But it does not require an explicit alignment between climate risk management and executive compensation.

“Some international regulators are increasingly making a more direct link between climate risk and pay. APRA … believes that councils need to maintain discretion in designing a pay framework that is appropriate for their organization.”

The regulator will conduct a survey on the financial risk of climate change to help organizations understand the level of alignment between climate change financial risk management, new guidance, and TCFD recommendations.