Australian prudential regulator releases climate risk guidance

April 27, 2021|Written by

The Australian Prudential Regulation Authority (APRA) released draft guidance on managing financial risks of climate change.

The Prudential Practice Guide (PPG) outlines how financial institutions should incorporate climate change into their governance, strategy and risk management, and how they should disclose their climate-related financial risks. It is based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFGD).

The new guidance from Australia’s financial regulator is a non-binding consultation document, and does not impose any additional requirements on financial institutions.

In a statement introducing the new guidance, APRA chair Wayne Byres said it was important that regulated entities were prepared to respond to financial risks. However he also emphasised the voluntary nature of the guidance.

“The prudential practice guide doesn’t direct or prevent APRA-regulated entities making any particular business or investment decision,” he said. “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.”

The release of the consultative PPG follows announcements of mandatory TCFD-aligned climate-related financial disclosure from the UK, New Zealand, China, Switzerland and other countries.

Climate-related financial disclosures are also on the work programme of the powerful Basel Committee, the primary global standard setter for the supervision of financial institutions. Such disclosures are considered essential in understanding climate risk exposure and the threat of climate change to financial and economic stability.

This page was last updated July 9, 2024

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