APRA grilled over climate risk

By Lachlan Maddock

August 06 2020
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APRA has fought back against suggestions from a Liberal MP that it dropped the ball on COVID-19 due to a narrow-minded focus on climate change.

Appearing before the standing committee on economics, APRA faced a grilling from Liberal MP Craig Kelly over the hiring of a climate risk officer and the possibility that climate change had taken too much of its prudential focus.

“In the last 12 years, there hasn’t been a single mention by APRA, in any of the public speeches, in any of the public releases, about the pandemic risks,” Mr Kelly said. “All these speeches and all this focus, and we’ve even got a special employee position for climate risk. Do you think you’ve dropped the ball and you’ve been aiming at the wrong target?”

Mr Kelly, a noted climate change sceptic, cited a number of pandemics – including the 1890 Russian Flu, 1968 Hong Kong Flu and SARS – as evidence that APRA had spent too much time on climate risk.

“You’ve made specific requirements for your APRA-regulated entities to make provisions and comments on climate risk, but you’ve done nothing on pandemic risk,” Mr Kelly said. “It seems to me you’ve dropped the ball completely and you’ve been overly focusing on climate when you haven’t been focusing on pandemics.”

But APRA hit back at Mr Kelly’s line of questioning, saying it had released guidance on pandemic risks 13 years ago and that its efforts since had resulted in banks building sufficient capital buffers to withstand the economic shock.

“To your assertion that we’ve done nothing for 12 years, that guidance was updated on a number of occasions since it was originally released, and we would regard the fact that the industry has withstood this period of significant disruption as evidence that actually that has had effect,” said APRA chairman Wayne Byres. “The proof in the pudding is that the industry has stood up very, very well to a period of significant disruption.”

In recent years, APRA has taken a closer look at climate risk, warning Australia’s financial institutions to evaluate the damage that more frequent extreme weather events and the transition to a low-carbon economy could do to their balance sheets.

“The effects of a changing climate extend to all sectors of the economy,” the regulator said in a statement in February. “Those effects are being transmitted directly as well as indirectly, through changing policies, technological developments, investment and consumer preferences.”

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