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Increasing Focus on Climate Change Related Risk

Friday 26 November 2021

The Australian Prudential Regulation Authority (APRA) has ‘finalised’  a prudential  guide of managing financial risks of climate change.

The regulator added that APRA-Regulated entities are expected to begin using the guide immediately.

The prudential regulator said that the Prudential Practice Guide CPG 229  Climate Change Financial Risks will help their regulated entities manage these financial risks, but instead of new requirements it will rely on existing risk management and governance practices.

APRA Chair Wayne Byres said in an official statement, “Most APRA-regulated entities recognise the potential challenges of climate change, such as future changes in consumer and investor demand, emerging technologies, new laws or adjustments in asset values, but they don’t always have a good understanding of how to respond. CPG 229 is a direct response to their request for more clarity about regulatory expectations and examples of better industry practice.” 
Joint Statement
Earlier this the month saw the publication of the joint statement with APRA and the Reserve Bank of Australia (RBA) announcing their commitment to the Network of Central Banks and Supervisors for Greening the Financial System (NGFS).

APRA announced a number of actions that it was planning to undertake, including publishing a regulatory guide. The RBA indicated that it would monitor the implications of climate change and consider the mitigation strategies for the economy.

Both regulatory bodies said that, “APRA and the RBA will continue to draw attention to the financial stability and macroeconomic consequences of climate change, including through speeches and by publishing analytical work on climate change. APRA and the RBA also commit to sharing knowledge based on their experience in climate-related topics with other central banks and regulatory agencies.”
Across the Tasman
 Earlier this month Financial Market Authority (FMA) published its own implementation approach for the Financial Sector(Climate-related Disclosures  and Other Matters) Amendment Bill.
This legislation will capture around 200 entities in New Zealand.

The FMA indicated that the new legislation will require ‘certain’ entities to be  known as climate reporting entities who will have to produce annual statements on the impact of climate change on their organisations  and disclose their greenhouse gas emissions.

When the bill was having it third reading in the senate, FMA Director Sarah Vrede said in an official statement, “Our initial regulatory approach will be focused on supporting climate reporting entities and other relevant stakeholders as they prepare for the new regime. For the next few years, we will have a strong focus on supporting and encouraging development of good practice. In the early stages of the new regime, enforcement action is likely to be focused only on serious misconduct, such as failure to produce climate statements or where climate statements are false or misleading.”