Australian regulator shies away from mandatory climate disclosures

December 3, 2021

The Australian Prudential Regulation Authority (APRA) has opted not to include mandatory climate risk disclosures in new guidance for the country’s financial services sector.

The APRA has published a guide for banks, insurers, and pension funds on climate change-related financial risks, following a consultation launched in April this year.

The guide does not impose new regulatory requirements or obligations. Instead, it has been designed to assist APRA-regulated entities to manage climate-related risks and opportunities within their existing risk management and governance practices, the regulator said.

It covers areas such as governance, risk management, scenario analysis, and disclosure of climate-related financial risks. Each institution can adapt the approach depending on its size, customer base, and business strategy.

During the consultation, APRA said, some respondents called for a greater level of prescription in the regulator’s approach, citing concerns that they might “lack adequate capabilities or resources to address the financial risks of climate change”.

However, the regulator shied away from prescriptive rules on climate risk disclosures, such as those that are being rolled out across the EU and the UK.

Wayne Byres, chair of APRA, said: “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.

“[This guidance] is a direct response to their request for more clarity about regulatory expectations and examples of better industry practice.”

Byres acknowledged that the guide did not force companies to make any particular investment, lending, or underwriting decisions.

“We do want to make sure that those decisions are well-informed, and don’t undermine the interests of bank depositors, insurance policyholders or superannuation members,” he explained.

Next year, the Australian regulator said it intends to carry out research to assess how institutions were managing climate change risks and how this aligned with its guidance as well as the recommendations of the Financial Stability Board’s Task Force for Climate-related Financial Disclosures.

Minerva recently published two briefings covering the latest in regulatory, ESG stewardship and proxy voting developments in Australia. Read more below.

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