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APRA says banks might pay for climate delay

Ayesha de Kretser
Ayesha de KretserSenior reporter

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APRA chairman Wayne Byres says the regulator is conscious that Australian banks might have to pay more for funding given the country’s timeline for getting to net zero emissions.

As more global investors look to transition their portfolios to align with net zero by 2030 – 20 years earlier than the federal government’s plan for net zero emissions by 2050 – Mr Byres told The Australian Financial Review that the different timelines present a risk that the Australian Prudential Regulation Authority is factoring in its climate considerations.

APRA chairman Wayne Byres says the prudential regulator is watching climate risks closely. 

“What’s important for us in our role as prudential regulator is to understand what are the implications from some jurisdictions moving faster than others or our financial institutions,” he said.

“We’ve often heard of the potential for there to be a risk premium applied into Australia because other countries may be moving faster.

“That is a risk we need to be conscious of and watch out for.”

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Mr Byres stressed that there are no signs at present that funding costs have shifted on the basis of the banks’ net zero targets, but echoed Reserve Bank of Australia governor Phil Lowe’s comments around international investors factoring climate into their considerations more actively.

“I don’t actually see it as being prevalent at the moment,” he said, “but there’s no doubt we have a financial system that is dependent, to some extent, on international debt and equity investors to provide its funding. And for those international investors inevitably one of their key investment criteria in this day and age is climate and climate-related risks.”

Common standards are critical

APRA has asked the banks to perform their own voluntary assessments of climate risks and Mr Byres said he was pleased with the level of disclosure so far. “I think our institutions are showing they are responding, and they’re increasingly making their disclosures in accordance with the TCFD [Taskforce on Climate-related Financial Disclosure] requirements.

“The point is, it’s a work in progress. We’re monitoring it. We’re keeping an eye on what international investors are expecting of our institutions, but I think they’re responding to it.”

Mr Byres stressed that APRA is comfortable with the banks’ ability to secure funding but said the development of common standards for reporting climate exposure would be critical from an international perspective.

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“Banks and other financial institutions are readily able to get access to funding liquidity, et cetera, without any obvious risk premiums, so I don’t see the risk today – but it could play out over time.

“The key issue would be how, in an international context, we will apply the various taxonomies that are being developed on how do you to report climate exposure?”

Australian Securities and Investments Commission chairman Joe Longo told the Australian Banking Association conference in Sydney on Friday that the new standards being developed would need to take into account Australia’s economic specificities.

“We probably will need to [adapt global rules to the local environment] because I think any international standard or indeed any taxonomy being introduced for regions of the world, you know, European, etcetera, they’ll now naturally have a specific focus,” Mr Longo said.

As ASIC leads work through the Council of Financial Regulators with the Reserve Bank and APRA to introduce International Sustainability Standard Board provisions on disclosure for climate-related risks, Mr Byres said the work would help the country to attract capital.

“One of the big pieces that will come out of that is expected to bring more standardisation and to bridge that time frame gap as well, and make it easier for Australia to attract capital going into the future,” he said.

Mr Byres said banks had a role to play in financing the energy transition but would need to look at the outcomes of their investment decisions carefully to ensure the best approach for the country.

“You can’t just walk away from everything that has some element of climate risk because the outcome will be worse for everybody,” he said.

Ayesha de Kretser is a senior reporter with The Australian Financial Review covering the aviation and tourism sectors. She has previously reported on banking, mining and commodity markets. Connect with Ayesha on Twitter. Email Ayesha at ayesha.dekretser@afr.com.au

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