Australia’s premier financial regulatory body has delivered a stark warning to the country’s politicians, saying that climate change already poses “system-side” financial risk, and not enough is being done about it.
The warning was given by the Geoff Summerhayes, a former head of Suncorp and now a board member of the Australian Prudential Regulation Authority. It echoed similar warnings delivered by Bank of England governor Mark Carney in recent years and work by the Financial Stability Board.
“While climate risks have been broadly recognised, they have often been seen as a future problem or a non-financial problem,” Summerhayes said in a speech to the Insurance Council of Australia Annual Forum.
“The key point I want to make today, and that APRA wants to be explicit about, is that this is no longer the case.
“Some climate risks are distinctly ‘financial’ in nature. Many of these risks are foreseeable, material and actionable now. Climate risks also have potential system-wide implications that APRA and other regulators here and abroad are paying much closer attention to.”
Summerhayes said that APRA wanted more work on understanding the risks involved in not taking any action.
“We are keenly aware of potential systemic implications. But in simple terms, a comprehensive understanding that will help to identify and avert potential vulnerabilities is not possible unless entities and regulators are systematically monitoring, disclosing and talking about these risks,” he said.
“It’s unsafe for entities or regulators to ignore risks just because there is uncertainty, or even controversy, about the policy outlook. Like all risks, it is better they are explicitly considered and managed as appropriate, rather than simply ignored or neglected.”
The speech was described as significant by key players in the industry.
“This is the first time an Australian financial authority has clearly indicated climate risk is a concern for financial Institutions – although many of their overseas peers have already gone further,” said Kate Mackenzie, the head of finance and investment at The Climate Institute.
“It underlines that climate change is too important as a financial risk to allow ourselves to be distracted by politics.”
Emma Herd, from the Investor Group on Climate Change, said: “APRA’s comments today bring home the reality that climate change is a major economic force impacting the way we think about risk and opportunity”.
“APRA has …. set out clearly their view that Australian companies should be managing climate change and that there are system-wide implications for the Australian economy in how we manage this transition”.
Summerhayes flagged that APRA would see to “stress test” listed companies that could be affected by “adverse shoes” – presumably those with high exposure to the fossil fuel sector. And would then look at the system-wide implications.
Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.
Insurance companies have been responding the extra costs caused by more extreme climate change related events for years
Yep, but when are the weak heads going to wake up!
Most regular people and small companies have a short term view. These entities just go about their day-to-day business and also vote accordingly. Only large organisations and government have reason to have a long term view, and even this view is questionable because of a need in the case of companies to be profitable in the shorter term and in the case of government to get re-elected.
So it is going to take someone with insight and BALLS to do something about climate change.
I read with interest APRA’s view. The Coalition considers itself the natural successor to manage the federation’s finances (they even got a Barnaby, a real-life accountant). But who else would we think is so able to take the current Government into its confidence, to explain those climate risks ? Our logical sides would say this shouldn’t be an issue, and our experienced sides might say there’s no hope in hell they’ll listen.
Berkshire Hathaway, the most profitable insurance company in the world, is already accounting for global warming in all of its underwriting and actuarial estimates.