Speech: Climate Risks and the Australian Financial System

RBA Deputy Governor Guy Debelle gave a speech on Climate Risks and the Australian Financial System.

Key points: 

• Climate change is a first-order risk for the financial system. It has a broad-ranging impact on Australia, both in terms of geography and in terms of Australian businesses and households.  
• The assessment of climate risks has evolved considerably over the past five years, but there remains considerable scope for further improvement. 
• Investors will adjust their portfolios in response to climate risks. Governments in other jurisdictions are implementing net zero policies. Both of these are effectively increasing the cost of emissions-intensive activities in Australia. 

Introduction:

“Why is there a particular focus of the CFR on the financial risks of climate change? Isn’t it just like any other risk that we would expect financial institutions to manage?

Climate change is a first-order risk for the financial system. It has a broad-ranging impact on Australia, both in terms of geography and in terms of Australian businesses and households. Most Australian financial institutions now recognise climate as a risk. The assessment of climate risks has evolved considerably over the past five years, but there remains considerable scope for further improvement. There are a number of complexities that make this a challenging risk for financial institutions to assess, including the uncertainties involved in making assumptions about a possible future and the lack of historical data.^[2]

These challenges make the case for public policy to provide regulatory guidance about what standards of risk management should look like and to co-ordinate outcomes in areas such as disclosure. One of the main challenges that we are focussing on in the CFR Working Group is the quality, consistency, comparability and often the sheer availability of data to appropriately assess climate risks.”

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Climate ChangeRBASpeech