September 2022

Council of Financial Regulators Climate Change Activity Stocktake 2022

Prepared by CFR Climate Working Group

This stocktake paper outlines the recent activities and planned further work of the Council of Financial Regulators Climate Working Group in relation to risks and opportunities for Australia posed by climate change. Further details are contained in Attachment 1.

Key issues

The CFR agencies have taken steps to improve the ability of Australian corporates and financial institutions to identify and manage the financial risks associated with climate change, and to provide high-quality comparable climate-related disclosures. In particular, a focus in 2021/22 has been finalising the Climate Vulnerability Assessment (CVA) to measure the potential financial risks to large banks, the financial system and economy posed by both physical and transition climate risks using scenario analysis. Other important work has focused on facilitating the development of high-quality and comparable climate-related financial disclosures in conjunction with industry and standard-setting bodies, following the publication of Exposure Drafts on climate-related disclosure by the International Sustainability Standards Board (ISSB). CFR agencies have discussed the implications of sustainable finance taxonomies developed overseas, and are supporting industry in its development of a suitable Australian taxonomy. Looking ahead, CFR agencies will continue to engage on these issues to support and coordinate actions to address the risks and opportunities of climate change, including via the international forums in which CFR agencies participate.


The Council of Financial Regulators Climate Working Group was established in 2017. Consistent with their mandates for financial stability and market efficiency, the Working Group provides a forum for APRA, ASIC, RBA and Treasury to consider and coordinate actions to enhance the ability of financial market participants to manage the financial risks and identify the opportunities associated with climate change. As per its terms of reference, the Working Group reports to the CFR at least once per year on international developments, emerging regulatory gaps and risks to the financial system in relation to climate change. The last update from the Working Group was provided to the CFR in September 2021.

Summary of activities in 2021/22

Australian regulators are strongly encouraging entities to adopt actions to address climate-related financial risks through supervisory oversight and policy settings. The working group had identified three priority areas for 2021/22:

  1. Understanding climate-related risks to the financial system, primarily by completing the Climate Vulnerability Assessment (CVA). Individual bank results were provided to APRA in late May 2022, consolidated analysis of the results is currently underway and key insights will be published later in 2022.
  2. Facilitating the development of high-quality and comparable climate-related disclosures. The CFR agencies, led by ASIC, engaged industry participants through stakeholder roundtables to gather feedback on the ISSB Exposure Drafts. ASIC considered the views of industry participants and worked with other CFR agencies in developing a joint CFR submission to the ISSB on the Exposure Drafts.
  3. Examining the implications of emerging sustainable finance taxonomies, including for investment flows. The CFR agencies held a roundtable with industry in November 2021 to discuss potential Australian approaches to these implications. The CFR agencies are supportive of the Australian Sustainable Finance Initiative's (ASFI) work in developing an Australian taxonomy, having joined the Technical Advisory Group as observers.

CFR agencies also undertook work to understand the impacts of climate-related developments on financial markets more broadly. This work included investor liaison on climate risks, analysis on how climate change may affect the cost of capital in Australia and developing a knowledge base for sustainable finance instruments and tools.

In May 2022, the role of chair of the working group was passed to APRA Deputy Chair Helen Rowell, replacing former Reserve Bank Deputy Governor Guy Debelle.

Priorities for 2022/23

The working group has three priority areas for 2022/23:

First, further analysis to better understand the climate-risk exposures of financial institutions and the financial system. Publication of the outcomes of, and insights from, undertaking the CVA is planned for later in 2022. APRA is working with participating banks to consider appropriate next steps in measuring and understanding the climate risk posed to regulated entities. This is supported by broader work by CFR agencies to build an understanding of relevant risks, including analysis by APRA and the RBA examining risks to general insurers.

Second, continue to strengthen the building blocks needed to facilitate high-quality and comparable climate-related disclosures, in line with the Government's commitment to introduce disclosure requirements aligned with international standards. ASIC will continue to support market integrity through proactive supervision and enforcement of governance, transparency and disclosure standards in relation to sustainable finance. CFR agencies will work towards ensuring that standards are developed and adopted in a way that is appropriate for our regulatory and economic context. Where particular ISSB metrics or disclosure requirements pose challenges for Australian entities given issues with capacity, capability and costs of accessing data and modelling expertise, CFR agencies will explore possible solutions along with government and industry.

Third, supporting a coordinated approach to sustainable finance and taxonomies, including continuing engagement with industry on an Australian approach to sustainable finance taxonomies. CFR agencies will also engage with other initiatives across industry and State, Territory and Commonwealth agencies on sustainable finance issues and trends. CFR agencies will continue to use their involvement in international groups, such as the G20 Sustainable Finance Working Group, the Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS), to learn about and, where appropriate, seek to influence the development of taxonomies.

Supporting activities

To support these priority areas, the CFR agencies will continue to examine challenges associated with the availability of data needed to assess climate-related financial risks and opportunities. Understanding the gaps in availability and quality of data is important for the development of high-quality climate risk assessments and disclosures, as well as the development of meaningful taxonomies. Groups such as the NGFS and FSB have dedicated workstreams to systematically map such data gaps identified by industry and regulators and propose ways to bridge these gaps.

Similarly, the CFR has an important supporting role in climate-related financial market developments, such as emerging sustainable finance tools and new products which will allow the financial sector to play its role in addressing climate risks. CFR agencies continue to engage with a range of stakeholders from industry and investors to expert bodies to appropriately support these developments.

Helen Rowell
Council of Financial Regulators Climate Working Group

Attachment 1 – Update of recent agency activity

Understanding the climate-risk exposures of financial institutions and the financial system

Alongside other Australian CFR agencies, APRA is leading the CVA of Australia's five largest authorised deposit-taking institutions (ADIs). The CVA has been designed to meet three objectives:

  • improve ADIs' climate risk management capabilities;
  • measure the potential financial risks to ADIs, the financial system and economy posed by both physical and transition climate risks; and
  • understand how ADIs may adjust their business models and implement management actions in response to the different scenarios.

The CVA is in its final stages, with the individual ADIs' results provided to APRA in late May 2022 and consolidated analysis of the results currently underway. Early analysis indicates that there is significant variability in the results, including across individual bank balance sheet changes and approaches to modelling and capabilities. Analysis is being undertaken to identify key risk concentrations in specific regions and sectors and understand banks' responses to these risks. Aggregate insights and lessons learned from the CVA will be published later in 2022.

APRA released Prudential Practice Guide CPG 229 Climate Change Financial Risks (CPG 229) in November 2021. This publication followed a three-month consultation period during which APRA received almost 50 submissions from various entities, finance and non-finance industry bodies, trade unions, academics and individuals. Building on this guidance, from March to May 2022, APRA conducted a voluntary climate risk self-assessment survey to gauge alignment of climate risk practices by medium-to-large APRA-regulated institutions to the expectations set out in CPG 229. The survey results, published in August, revealed broad alignment to CPG 229 with entities having started to embed climate risk into governance and elements of their risk management frameworks. The survey responses identified metrics and targets as an area for improvement, where the use of more advanced quantitative metrics, such as financed emissions, and forward-looking exposure to physical and transition risk was generally limited. The survey outcomes will be considered as part of APRA's ongoing supervisory activities.

In 2021, Treasury provided advice and analysis to government on potential capital market risks and costs for Australian entities and the economy if Australia was to lag a co-ordinated global transition to net zero emissions. This was to inform the government's analysis of costs and benefits associated with committing to achieve net zero emissions by 2050. A summary of Treasury's advice was published as an attachment to the then-Government's Long Term Emissions Reduction Plan. Then-Treasurer Frydenberg and Treasury Secretary Kennedy also provided public remarks on these issues, highlighting the need for Australia to manage the associated global capital market risks alongside the importance of a coordinated CFR agenda to identify and manage potential systemic risks. To that effect, the RBA and APRA have engaged with the investor community to understand sentiment on climate risks and its impact on Australian corporates. This engagement highlighted that climate risks have shifted from being a peripheral subject to being a central topic of focus. Investors appear more open to taking action over what they see as poor climate risk management, with a strong preference for engagement and, where deemed necessary, voting in line with their climate risk expectations.

The RBA has continued its work on assessing the effects of climate change on the financial system, extending its analysis of the effects of physical climate risks on mortgages by using more granular data. This analysis suggests that, while small, the proportion of high-risk properties within banks' mortgage portfolios is expected to increase by more than previous estimates. In its April 2022 Financial Stability Review, the RBA outlined how climate-related risks are being incorporated in foreign regulatory frameworks and large international banks' risk management practices. The RBA is also monitoring climate-related developments in energy markets and financial markets. Recent analytical work has examined energy market prices amidst the energy transition, the implications of emissions markets and carbon border adjustment mechanisms, and climate-related risks affecting the cost of capital in Australia.

Looking ahead, APRA is considering extending its analytical work to the insurance and superannuation sectors, and potentially expanding its climate risk self-assessment survey to cover all APRA-regulated entities. APRA is expanding its physical climate risk understanding to cover general insurance, particularly from an access and affordability perspective, and is considering its approach to net zero actions and commitments across banking, insurance and superannuation. APRA is also integrating climate risk into regular supervisory activities in accordance with APRA's risk-based supervision model.

The RBA plans to undertake further analysis of climate-related risks to the financial system, including by drawing on scenario development undertaken as part of APRA's CVA. The RBA will also support the work of APRA by extending its own analysis of climate risk faced by banks to also consider insurers. Separately, the RBA is undertaking work to model the effects of climate change on variables that are fundamental to the long-term setting of monetary policy, such as the neutral interest rate.

Government will invest in expanded Treasury climate modelling capability, including scaled up work to model the impact of climate change on the economic and fiscal outlook and to assess potential impacts of different emissions reductions pathways and policy scenarios.

Internationally, Working Group members are involved in discussion and sharing of information in a variety of fora:

  • APRA and the RBA are members of the NFGS, which is leading international progress on the development of common climate scenarios. In October 2021, the NGFS produced a report that surveyed members' recent experiences in using climate scenarios to assess climate-related risks in their own jurisdictions.[1] APRA's CVA was one example featured in the report.
  • APRA and the RBA are also members of the Basel Committee on Banking Supervision (BCBS), which released a set of principles for the management and supervision of climate-related financial risks by banks.
  • The RBA chaired the Executive Meeting of East Asia Pacific Central Banks (EMEAP) Monetary and Financial Stability Committee (MFSC) during the past year, which discussed the implications of climate change for monetary policy and financial stability.
  • A working group encompassing APRA and the RBA prepared a report for the FSB Standing Committee on Assessment of Vulnerabilities (SCAV) on the availability of data to monitor and assess climate-related risks to financial stability.
  • The International Association of Insurance Supervisors (IAIS) has identified climate risk to be a strategic theme of its 2020-2024 Roadmap. APRA is an active member of the IAIS Climate Risk Steering Group (CRSG) which is responsible for the overall coordination of the IAIS' work on climate risk, as well as its dedicated workstreams including scenario analysis.
Improving the quality, consistency and breadth of climate-related disclosures

Domestically, ASIC continues its work on improving standards of climate change-related governance and disclosure by listed companies. Through targeted surveillance and external communications, ASIC seeks to support and influence Australian companies to adopt sophisticated governance structures that produce more nuanced and reliable climate-related disclosures.

ASIC has released an information sheet to help issuers avoid ‘greenwashing’ when offering or promoting sustainability-related products. The publication will also assist issuers to provide investors with the information they need to make informed decisions. ASIC considers ‘greenwashing’ as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical. ASIC undertook a ‘greenwashing’ review of a sample of superannuation and investment products and identified some areas for improvement. In particular, issuers in their disclosure and promotions need to:

  • use clear labels
  • define the sustainability terminology they use
  • clearly explain how sustainability considerations are factored into their investment strategy.

ASIC will continue to monitor the market and look for misleading claims about ESG and sustainability and will take enforcement action against misconduct, including misleading marketing and greenwashing by entities.

CFR agencies welcomed both the establishment of the ISSB and the significant progress made toward establishing global sustainability reporting standards.[2] The ISSB published draft standards on sustainability-related financial disclosures and climate-related disclosures (Exposure Drafts) for consultation. The CFR agencies, led by ASIC, engaged industry participants through stakeholder roundtables to gather feedback on the ISSB Exposure Drafts. ASIC considered the views of industry participants and worked with other CFR agencies in developing a joint submission to the ISSB on the Exposure Drafts.[3]

ASIC's core message in relation to disclosure and governance remains that directors and senior management of listed companies must:

  • Consider climate risk – directors and management of listed companies should understand and continually reassess existing and emerging risks, including climate risk
  • Develop and maintain strong and effective corporate governance – strong corporate governance facilitates identifying and managing material risks
  • Comply with the law – directors should consider disclosure of material business risks affecting future prospects in an operating and financial review, and
  • Disclose useful information to investors – directors of listed companies with material exposure to climate risk should consider reporting voluntarily under the Taskforce for Climate-related Financial Disclosures (TCFD) framework.

Treasury will work with ASIC and industry to deliver the Government's commitment to standardise climate disclosure requirements for large, listed companies and financial institutions. This will include consultation on options and models for introducing globally aligned climate reporting requirements, as well as on the scope and timing of any mandatory obligations.

The RBA is continuing to explore the scope to publish its own climate-related disclosures, with a view to improving transparency around its exposure to climate risks and providing another example of increased transparency. Treasury is engaging with counterparts at Federal and State government level to understand emerging trends for assessing and reporting climate-related risks by public sector entities, and to better understand the implications of the ISSB and other framework for public sector climate risk reporting (noting that policy responsibility for public sector reporting sits with the Department of Finance).

CFR agencies in general will closely follow actions by the ISSB, TCFD and other international organisations and regulators in relation to climate-related disclosure, and how these may impact domestic disclosures and regulated entities. ASIC is a member of the Sustainable Finance Taskforce of the International Organisation of Securities Commission (IOSCO), which provides input to the ISSB, and will consider possible IOSCO endorsement of the ISSB standards. Treasury and the RBA represent Australia on the FSB and G20 Sustainable Finance Working Group (SFWG) and support work to deliver on their respective climate-related Roadmaps. This includes a strong focus on improving the quality, consistency and breadth of climate disclosures. Treasury is also closely monitoring legislative and regulatory developments in key jurisdictions that are developing more prescriptive climate-related disclosure requirements, including through active engagement by Treasury posts and consultation with counterparts in other jurisdictions.

Supporting the development of sustainable finance tools and taxonomies

Members of the CFR agencies are observers on the Technical Advisory Group convened by the Australian Sustainable Finance Initiative (ASFI) as it progresses the initial phase of its work towards an industry-led Australian sustainable finance taxonomy. Treasury, ASIC and APRA are also observers on the Project Steering Committee.

Taxonomies remain a focus of the G20 SFWG. In 2022, the SFWG has focused on three priority areas: developing a framework for transition finance and improving the credibility of financial institutions' net zero commitments, scaling up sustainable finance instruments, and discussing policy levers that incentivise financing that supports the transition.

The RBA and APRA are also exploring the growth of the domestic green bond market for securities markets. ASIC is undertaking a targeted surveillance of green bond issuances to identify misleading and deceptive conduct (particularly instances of ‘greenwashing’) and assess related oversight and governance.

Other key Government initiatives

The Government has introduced a new 2030 emissions reductions target of 43 per cent below 2005 levels and is taking steps to enshrine Australia's 2050 net zero targets in law. Under its Powering Australia plan, the Government is introducing new measures across the economy to drive the net zero transition, including major investments in the modernisation of the electricity grid and delivering Australia's first National Electric Vehicle Strategy.


Network for Greening the Financial System (2021), Available at <>, October. [1]

Australian Securities and Investments Commission (2021). Available at <>, media release, 14 December. [2]

See Council of Financial Regulators (2022), ‘Comment Letter to the International Sustainability Standards Board’, August [3]