Climate Change and Prudential Risk
Geoff Sumerhayes, (Australian Prudential Regulation Authority, APRA) in a speech to the Insurance Council annual forum 2017 addressed how "we [APRA] see ‘climate risks’ as part of our broader approach to prudential risk management and supervision."
Key points are:
- climate risks are not now seen as a future problem or a non-financial problem;
- Some climate risks are distinclty financial;
- These risks are foreseeable, material and actionable now;
- Climate risks can have system wide implications to which regulators are paying attention;
The risks are:
- Physical risks - arising from the direct impact of climate change on the environment disrupting supply changes, resources availability or damage to assets
- Transistion risks - arising from changes in policy, law, markets technologies and prices that are part of the now agreed transistion to a low-carbon economy
He emphasises the role of scenario analysis at the firm level - considering and modelling the potential impacts of risks, - with the most important scenario being the Paris Agreement goal of less than 2 degress of warming as this will guide much of the internatonal policy development.