APRA releases survey results assessing management of risks associated with climate change in the financial sector

The Australian Prudential Regulation Authority (APRA) has published the findings of its second climate risk self-assessment survey. The findings provide deeper insights into how regulated entities identify, manage and disclose the financial risks of climate change and align their practices with the Prudential Practice Guide CPG 229 Climate Change Financial Risks.  

The voluntary survey, announced in April this year, builds on a smaller survey conducted with large entities in 2022. This time, all APRA-regulated banks, insurers and superannuation trustees were invited to participate, with responses received covering over half of the entities.  

The self-assessed results were broadly aligned with APRA’s expectations. While larger entities have continued to improve their climate risk maturity on average, broad variations remain. There are areas for improvement and a need to see greater convergence towards leading practice over time. Smaller entities generally reported lower climate risk maturity.  

Other key insights from the results include: 

• Most large entities have improved their climate risk maturity since 2022. However, around one-quarter have seen their climate risk maturity score decline.  

• The average level of climate risk maturity for large banks has improved since 2022, while it is broadly unchanged across large insurers and superannuation trustees. 

• Areas of strength were ‘governance and strategy’, as well as ‘risk management’. Entities did not perform as well on ‘disclosure’ or ‘metrics and targets’.  

• More mature governance structures are typically in place at entities where climate risk has been integrated into risk management. 

• Entities are starting to consider adjacent risks and practices such as nature risk and transition plans. 

APRA Member Suzanne Smith said: “Climate change not only has wide-ranging impact on our planet but can also exacerbate existing vulnerabilities in Australian communities, such as poor land use planning or a lack of infrastructure resilience. This contributes to increased risk in the financial system, that can reduce financial institutions’ ability to effectively provide key financial services.” 

“APRA is urging all regulated entities – not only those who participated in the survey – to consider the findings, reflect on their own preparedness and implement leading practice for managing climate risk. Stakeholder expectations are rising, and APRA is committed to ensuring that the institutions it regulates take a strategic and risk-based approach to managing climate-related risks in a proportionate manner.” Ms Smith said. 

APRA highlighted in its 2024-25 Corporate Plan that it would increase its expectations for regulated entities to consider climate risks in their decision-making. APRA will elevate climate within the regulatory and supervisory landscape, including consulting on amending Prudential Standards CPS 220 and SPS 220 Risk Management to include climate risk in 2025.    

The survey findings are available on APRA’s website at: Climate Risk Self-Assessment Survey 2024.