APRA to assess major Aussie banks on climate vulnerability in 2021

Upwards angle of skyscraper in Melbourne.
Photo by Josh Calabrese on Unsplash.

In response to growing concerns around the climate crisis, the Australian Prudential Regulation Authority (APRA) will be assessing the climate vulnerability of the country’s largest banks.

This is part of the regulation authority’s new cross-industry prudential practice guide (PPG), the main aim of which is to manage climate-related financial risks. Although the PPG will not be a legally binding regulation, APRA hopes that it will prove helpful in guiding regulated financial service providers in managing environmental risks.

Assessing the big banks

APRA’s assessments of climate vulnerability - known as Climate Vulnerability Assessments (CVAs) - will check how vulnerable different banks are to physical and transition risks that are sure to come with climate change.

The assessments will also aim for an understanding of how business models can be adjusted, in response to unique challenges posed by different scenarios. To do this, APRA will use work already done by the Network for Greening the Financial System which was established in 2017.

APRA will start by reviewing Australia’s five biggest banks and then roll out the assessments to the rest of the banking sector. It hopes to have the results for the major banks by the end of 2021.

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