Australian Regulators Stress The Importance Of Managing Climate-Related Risk

Following in the footsteps of its international counterparts, the Australian Prudential Regulation Authority ("APRA") is ramping up its guidance on the management of climate-related risks.

On 22 April 2021, APRA released for consultation its draft guidance to banks, insurers and superannuation trustees on managing the financial risks of climate change (see Prudential Practice Guide CPG 229 Climate Change Financial Risks (CPG 229)). The guidance covers governance, risk management, scenario analysis and disclosure in respect of three categories of climate-related financial risks:

• Physical risks, which result from changing climate conditions and extreme weather events, and can lead to lower asset values, increased insurance claims and supply chain disruption;