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Finance sector teams with scientists on climate risk standards

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A coalition of Australian financial services providers, insurers and scientists has rolled out new standards for physical risk assessment from climate change.

The Climate Measurement Standards Initiative (CMSI) has developed a set of open-source voluntary guidelines that are aiming to provide Aussie financial institutions with scientific and technical guidance on how to evaluate the risk of climate-related damage to their buildings and infrastructure from extreme weather events.

Suncorp, NAB, Westpac, CBA, HSBC Australia, Munich Re, Swiss Re and the Investor Group on Climate Change were all involved among other organisations to develop the CMSI guidelines, as well as scientists from CSIRO’s Climate Science Centre and the Bureau of Meteorology.

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The guidelines have set out to consider future climate change risks that are “chronic and acute” for the general insurance, banking and asset owner sectors across the years 2030, 2050 and 2090, with two scenarios: global warming below and above 2 degrees Celsius. 

Chronic risks have been defined as gradual changes to temperatures, rainfall, sea level, time in drought and days where the temperature is greater than 35 degrees Celsius, whereas acute risks include tropical cyclones, east coast lows, extreme rainfall, hail, storm surges and bushfires. 

The financial disclosure guidelines have issued recommendations around timeframes for disclosure and told firms to split up their reporting by portfolio, hazard and by geographic region.

It has also made suggestions for describing both the confidence and uncertainty in critical assumptions made and disclosing resilience. 

The CMSI has been designed to support the G20 Financial Stability board’s Task Force on Climate-related Financial Disclosures (TCFD).

Chris Lee, chief executive of not-for-profit Climate-KIC Australia, which is convenor of the CMSI, called the initiative a “historic collaboration” between Australian industry, scientific and financial experts.

“The Australian financial sector needs to assess how cyclones, floods, hailstorms, fires, droughts, heatwaves and coastal inundation will likely affect their assets,” Mr Lee said.

“The CMSI provides guidelines specific to Australian conditions. Consumers will have confidence in the resulting disclosures because they’re understandable, consistent, comparable and supported by Australia’s leading climate experts.”

Emma Herd, CEO of the Investor Group on Climate Change commented extreme weather events pose a significant risk to the value of assets in investors’ portfolios and in turn, returns for Australians through super. 

“These new standards will help investors understand their exposure and adjust portfolio strategies accordingly,” Ms Herd said. 

NAB chief risk officer Shaun Dooley commented the work will help develop a “consistent finance sector approach to disclosure” in line with the TCFD and make reporting more comparable. 

“We hope the robust scientific information provided to support the use of scenarios for climate-related risk analysis will help build increased confidence in climate analysis undertaken by the finance sector and enable informed decisions about climate-related risks and opportunities,” Mr Dooley said.

 

Finance sector teams with scientists on climate risk standards
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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