Reserve Bank warns climate change posing increasing risk to financial stability

Australia’s central bank has delivered a clear warning that climate change is exposing financial institutions and the financial system more broadly to risks that will rise over time if action isn’t taken.

The Reserve Bank says climate change can
result in a decline in the income or value of
collateral that banks are lending against.

The RBA’s financial stability review, released Friday, concluded that while climate change is not yet a significant threat to financial stability in Australia, it is becoming increasingly important for investors and institutions to actively manage carbon risk.

The bank notes Australian insurers are the most directly exposed to the physical impacts of climate change, and points out that inflation-adjusted insurance claims for natural disasters this decade are more than twice what they were in the previous 10 years. It notes “this impact is likely to grow over time”.

“An increase in the frequency and severity of natural disasters will increase the incidence of damage to, or destruction of, physical assets that are insured or used as collateral,” the RBA said.

Read the story from The Guardian by Katharine Murphy - “Reserve Bank warns climate change posing increasing risk to financial stability.”