The Australian government has announced that it is implementing a new requirement for the Australian Prudential Regulation Authority (APRA), the country’s financial regulator, to incorporate climate change-related risks into its responsibilities. This mandate, outlined in an updated Statement of Expectations, aims to promote transparency regarding financial risks associated with climate change and encourage the adoption of climate reporting standards by regulated entities. Australian Treasurer Jim Chalmers emphasized that this is the first explicit requirement for the regulator to consider climate change risks in its work.
This development follows the government’s launch of a consultation paper in December 2022, which proposed a climate risk disclosure framework for businesses and financial institutions. The government plans to make reporting rules mandatory for large entities and recognizes climate-related risks as significant to global financial stability. As part of its efforts, the Treasury Department has been tasked with developing a comprehensive sustainable finance strategy that includes climate risk disclosure.
APRA has already taken steps to assess climate risk factors in the financial system. This includes conducting a Climate Vulnerability Assessment (CVA) with the country’s five largest banks, modeling the potential financial impact of climate change on their businesses, and evaluating responses to both physical and transitional climate risks.
In response to the government’s expectations, APRA has released a statement of intent, committing to promoting prudent practices and transparency regarding climate-related risks in the Australian financial system, aligning with the government’s sustainable finance reforms.
