Overseen by APRA, a group of industry players – including the big four banks – are looking to reshape the financial system to ensure readiness for climate risks.
Australia’s big four banks have, together with insurers and super funds, have backed an initiative to reshape the financial system to deal with climate change, reported the Australian Financial Review.
The so-called ‘Australian Sustainable Finance Initiative’, or AFSI, also includes fund managers, lawyers, academics and industry groups, and will be overseen by APRA (the Australian Prudential Regulation Authority).
The initiative is based on similar ventures in the UK and EU which promote market-based funding vehicles such as “green bonds” for sustainable projects.
While emphasis will be on climate change, the initiative will also focus on other ESG (environmental, social and governance) investment criteria, including labour standards, human rights, general violations of community expectations and executive remuneration, the AFR said.
“Sustainable finance is gaining momentum as investments that address climate change and sustainable development have become more accessible and more in demand,” said Westpac’s Didier Van Not, who is on the group’s steering committee alongside executives from ANZ, NAB and CBA.
The steering committee plans to publish a roadmap within 18 months – following consultation with the broader industry – to lay out how it should prepare for a low carbon economy and how to channel investment into environmentally friendly business ventures.
APRA executive board member and head of insurance Geoff Summerhayes and a representative from the UN Environment Program Finance Initiative will act as ‘observers’.
The ASFI comes on the heels of APRA’s announcement that it will increase scrutiny on how financial institutions are managing climate-related financial risks, and recent warnings from RBA (Reserve Bank of Australia) deputy governor Guy Debelle that climate change is likely to cause economic shocks and threaten Australia’s financial stability.