APRA launched a consultation on the Prudential Practice Guide for the management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees. The guidance covers views of APRA on sound practices in areas such as governance, risk management, scenario analysis, and disclosure. CPG 229 is aligned with the recommendations from the FSB Task Force on Climate-related Financial Disclosures (TCFD) and was developed in consultation with both domestic and international peer regulators. The comment period for this consultation will end on July 31, 2021 and the final guide is expected to be released before the end of 2021.
APRA has developed this practice guide in response to requests from industry for greater clarity of regulatory expectations and examples of better industry practices. The proposed guide aims to assist an APRA-regulated institution in complying with the CPS 220 and SPS 220 on Risk Management as well as CPS 510 and SPS 510 on Governance. Subject to meeting the requirements of the prudential standards, an APRA-regulated institution has the flexibility to configure its approach to climate risk management in a manner best suited to achieving its business objectives. APRA expects the implementation of the guidance proposed in CPG 229 to reflect an entity’s size, business mix, and complexity, noting that concentrations in a particular market, sector, or geographic location may expose an entity to more material climate risks. In CPG 229, APRA proposes practices in the following areas in the management of climate change financial risks:
- Identify and measure risks, including those in high exposure sectors, to understand potential impact on business model
- Monitor risks through regularly updated qualitative and quantitative metrics
- Evidence plans to manage risks through mitigation plans, including through engaging customers and counterparties
- Report relevant information to board and senior management and consider external market disclosures
- Consider scenario analysis to inform understanding of long-term risks and opportunities
Scenario analysis is an area where APRA sees a wide range of capabilities and practices. APRA is undertaking a climate vulnerability assessment involving largest banks in Australia; the assessment will involve climate scenario analysis in line with the expectations outlined in the draft guide. Overall, the draft guide does not create new requirements or obligations and is designed to assist entities to consider climate risks and opportunities in their existing risk management frameworks and to support well-informed decision-making.
Comment Due Date: July 31, 2021
Keywords: Asia Pacific, Australia, Banking, Climate Change Risk, ESG, Governance, Disclosures, Scenario Analysis, CPG 229, Climate Vulnerability Assessments, TCFD, Stress Testing, Reporting, APRA
Previous ArticleGLEIF Discusses Chinese Roadmap for LEI Adoption
Next ArticleBoE Publishes Draft Version of Statistics Taxonomy
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.