Financial regulator chairman Wayne Byres lobbied banks to take into account the unique business risks of climate change, highlighting a decline in the value of emission-intensive assets such as power plants in the coal.
As regulators around the world wonder how rising temperatures could affect finances, the chairman of the Australian Prudential Regulation Authority (APRA) said on Wednesday that climate risks to banks were “increasingly real and immediate “.
These risks included not only more extreme weather conditions, but also falling asset prices caused by the move away from emission-intensive fuels and the risk of not meeting investor and community expectations.
As an example, Mr. Byres referred to the Bluewaters coal-fired power plant in Western Australia, which has been declared worthless because renewables play a larger role. “The transition risks are evident in the changes that occur in the value of assets affected by climate,” Mr. Byres said.
After APRA released advice on climate risk to boards last week, Byres stressed that climate change should be part of banks’ decision-making process. He said APRA will work with CSIRO in the upcoming climate stress tests of the country’s five largest banks, while highlighting moves abroad to force banks to disclose the impact of climate change on their businesses. .
“All of these developments underscore the importance of understanding the significant changes which are not only underway, but which are gathering momentum,” Byres said in a address to Australia’s Economic Development Committee.
“Financial institutions need to think about how these actions will impact their businesses, as well as those of their clients.”
Climate change was one of the three key issues addressed in Mr Byres’ speech, alongside cybersecurity and cultural risks in finance. In questions following the speech, Mr. Byres reiterated that APRA was unlikely to dampen the booming mortgage market anytime soon.
National Australia Bank chairman Phil Chronican said this month that regulatory intervention would be a “rational response” if regulators wanted to remove some heat from the market. However, Mr Byres said APRA’s concern was not with house prices themselves, but whether there was a broader risk to the financial system created by loose loans.
“Like I said before, so far we don’t see this, I think the banks have done a very good job in maintaining lending standards,” Mr. Byres said.
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