The Federal Government may not yet be able to outline a definitive policy approach to climate change, but the Australian Prudential Regulation Authority (APRA) has signalled that it will be imposing a climate change stress test on banks, superannuation funds and insurers.
The regulator revealed its intentions when announcing its supervisory priorities for 2020 and said that a key initiative would be the development of a climate change stress test.
It said the stress test would enable a better understanding of the overall financial system’s resilience to climate-related risks and that it was collaborating with the Reserve Bank and the Australian Securities and Investments Commission (ASIC) on the design of the stress test.
APRA said it had been increasing its scrutiny of how banks, insurers and superannuation trustees were managing climate risks, and reference the fact that in 2018 it had surveyed 38 large entities to understand the range of activities and strategic responses that entities were adopting to mitigate climate change risks.
“APRA is reviewing these entities’ progress since the initial survey and forming assessments of the robustness of each of the entities’ management of the risks,” it said.
APRA said that the findings of the review would inform the development of a new prudential practice guide.