The government of Australia announced that it is for the first time mandating Australia’s financial regulator, the Australian Prudential Regulation Authority (APRA), to incorporate climate change-related risks as part of its role.

The new requirement, released as part of an updated Statement of Expectations for ARPA, includes “promoting transparency in relation to financial risks and the adoption of climate reporting standards,” according to a statement by Australian Treasurer Jim Chalmers.

The new Statement of According to the new statement, the government will now expect APRA to “promote prudent practices and transparency in relation to climate‑related financial risks and the adoption of climate reporting standards by regulated entities.”

Chalmers said:

“For the first time, the Government is explicit in requiring the regulator to consider risks related to climate change as part of its work.”

The new statement follows the government’s launch in December 2022 of a consultation paper on the development of a climate risk disclosure framework for businesses and financial institutions, with plans to make the reporting rules mandatory for large entities, and stating that it recognizes physical and transition climate related risk “as a material risk to the global financial risk,” with disclosure forming a key tool in managing that risk. The government also tasked the Treasury department to develop a comprehensive sustainable finance strategy, with climate risk disclosure forming a part of the strategy.

APRA has already started initiatives to assess climate risk factors in the financial system, including recently conducting its first Climate Vulnerability Assessment (CVA) with the country’s five largest banks, which modelled the estimated future financial impact of climate change on their businesses, and their potential responses to physical and transition climate risks.

In response to the government’s new expectations, APRA released a statement of intent, including a statement that the regulator “will continue to promote prudent practices and transparency in relation to climate-related risks in the Australian financial system, consistent with the Government’s sustainable finance reforms.”