The Australian Prudential Regulation Authority (APRA) Executive Board Member, Geoff Summerhayes address the topic of climate risk in his speech at the International Insurance Society Global Insurance Forum in Singapore.
Summerhayes spoke about the global debate about the financial impact of taking strong action to address climate change, warning that failing to take sufficient action now will lead to much higher economic costs in the long-term.
He said, “The tension between the environmental necessity of taking decisive action to limit global warming, and the economic impacts of doing so … is premised on an indisputable truth: the level of economic structural change needed to prepare for the transition to the low-carbon economy cannot be undertaken without a cost. But it’s also true that failing to act carries its own price tag due to such factors as extreme weather, more frequent droughts and higher sea levels.”
Summerhayes stated that the scientific link between rising carbon emissions and warming temperatures may be irrefutable, but the data around how its impacts will unfold, and how to best manage them, remains badly under-developed, making informed debate challenging, misinformation rife and decision-making difficult.
He specified that by disclosing their climate risks and how they are addressing them, insurers, banks and superannuation funds put themselves in the best position to adjust to the new economic reality, “More importantly, the availability of more timely, reliable and granular data will help all businesses, investors and regulators to better understand the transition-physical risk trade-off, and the reality that there is no avoiding the costs of adjusting to a low-carbon future.”
Summerhayes also confirmed that APRA is embedding the assessment of climate risk into their ongoing supervisory activities, “We intend to probe the entities we regulate on their risk identification, measurement and mitigation strategies. We expect to see continuous improvement in how entities are preparing for the transition to the low-carbon economy.”
The full speech is available on the APRA website.