Australia’s new horizon: Climate change challenges and prudential risk

Thank you for welcoming me again to your conference.

Geoff Summerhayes.

I spoke here, around this time last year, on ‘culture, rugby and regulation’. This time around we’re still in the cricket season – but I’ve promised my team that I’ll be keeping the sporting analogies to a bare minimum.

My focus today will be climate change and climate risk. Following my remarks here last year, I fielded a question from the floor on climate change and associated prudential risks, and noted some of the implications for financial sector entities. The questions moved on, but I have continued to reflect on these issues with my colleagues over the past 12 months.

At the same time, developments in Australia and abroad placed climate-related financial risks firmly in sight. Bank of England Governor, Mark Carney, said last year that the entry into force of the Paris Climate Agreement ‘brings the horizon forward’ for action on climate change. It heightens transition risks and opportunities, makes them more immediate, and ‘puts a premium on the ability of private markets to adjust’. ¹Australia’s ratification of the Paris Agreement last November ensures we have a new horizon too.

Today I want to reflect on these and other developments. I want to offer some observations about why climate-related risks are likely to be relevant and important, not only for insurers but for all APRA-regulated entities. I will also talk about how we see ‘climate risks’ as part of our broader approach to prudential risk management and supervision.

Read the speech by Executive Board Member of the Insurance Council of Australia, Geoff Summerhayes at the group’s annual forum in Sydney -  “Australia’s new horizon: Climate change challenges and prudential risk.”