Australian banking regulator finalizes policy guidance on climate change

SYDNEY, Nov. 26 (Reuters) – Australia’s banking regulator on Friday released final guidelines for banks, insurers and pension funds to manage financial risks from climate change, without imposing new rules.

The Australian Prudential Regulatory Authority (APRA) said the principle-based guide is aligned with recommendations from the Financial Stability Board’s Disclosures Working Group on Climate-Related Finance (TCFD) set up by the rich countries of the G20 to coordinate the rules.

“Most of the entities regulated by APRA recognize the potential challenges of climate change, such as… new laws or adjustments in asset values, but they do not always fully understand how to respond,” said the president of the APRA. ‘APRA, Wayne Byres.

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The guidance document followed a draft released in April for consultation and “is a direct response to their request for more clarity on regulatory expectations and examples of industry best practice,” Byres said.

The guidelines call on financial companies to immediately start managing climate change risks within their existing risk management frameworks.

He calls on administrators to set “limits and thresholds for exposure to financial risks that the institution is prepared to bear” when climate risks are considered significant.

Top management should also define clear lines of responsibility in managing climate risks, and boards should hold senior management to account for these responsibilities.

But it does not ask for an explicit alignment between climate risk management and executive compensation.

“Some international regulators are increasingly making a direct link between climate risk and compensation. APRA (…) maintains the view that boards should retain the discretion to design a compensation framework adapted to their institution. “

The regulator will conduct a survey on the financial risk related to climate change to understand the level of alignment between the management by institutions of financial risks related to climate change, the new orientations and the recommendations of the TCFD.

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Reporting by Paulina Duran in Sydney; additional reporting by Sameer Manekar in Bengaluru; Editing by Rashmi Aich and Lincoln Feast.

Our Standards: Thomson Reuters Trust Principles.

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