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APRA survey finds the superannuation industry further advanced on four key measures.
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Super ahead of banking, insurance on climate risk
08 August 2022
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The superannuation industry is managing the risks of climate change better than banking and insurance, according to an APRA survey, coming out ahead in four key areas.
The survey found that the superannuation sector was outperforming banking and insurance on climate change governance and strategy, risk management, metrics and targets, and disclosure.
The survey found that only 48 per cent of institutions assessed the potential impact of climate risk on a regular basis.
However the superannuation sector showed the most progress with 75 per cent responding that they assessed climate risk on a regular basis, almost four times the rate of the banking sector.
Despite positives for the super industry, APRA found that managing climate risk was still an emerging skill with only a few respondents fully incorporating it into their business.
The regulation authority also found that while four out of five boards oversaw climate risk regularly, only two-thirds had brought climate risk into their strategic planning process.
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The survey revealed that most institutions were developing either quantitative and qualitative climate risk management approaches, with a stronger focus on the latter. APRA said this ensured quantitative activity took place within robust risk and governance frameworks.
On average, the superannuation sector came out in front of banking and insurance with greater development of both qualitative and quantitative measures.
Nearly three-quarters of institutions surveyed by APRA declared they had one or more climate-related targets in place for their business but 23 per cent did not have any metrics to measure and monitor the climate risks.
Deputy chair of APRA, Helen Rowell, said that the findings were encouraging but more work was needed.
“Climate change and the global response to it are creating financial risk for banks, insurers and superannuation trustees, whether it be physical damage from floods or bushfires, or asset price volatility as consumer and investor demands evolve,” said Ms Rowell.
“The survey findings indicate that most survey participants are taking this issue seriously, however they also underline that this remains a relatively new and evolving area of risk management, especially with regards to setting metrics and targets.”
The survey also revealed that the size of the company correlated to its development of climate risk management, with larger businesses consistently scoring themselves higher than their smaller counterparts.
APRA said that this result likely reflected a greater investment into climate risk management by the larger institutions but also could be driven by stakeholders.
Ms Rowell said that the importance of climate risk management would only grow as investor focus on the matter increased.
“With stakeholder expectations on climate risk only going to rise further in coming years, we urge all regulated entities – not only those involved in the survey – to consider the findings and reflect on their preparedness,” said Ms Rowell.
The survey results were collated from self-assessed responses to 47 questions issued by APRA that were completed by 64 medium to large businesses across superannuation, banking and insurance industries.
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