The Reserve Bank of Australia’s head of domestic markets says banks are behind insurers when it comes to assessing climate risks.
Governments need to better plan residential zones as insurers shun climate-affected areas and make getting policies either unaffordable or impossible, with the risks of global warming expected to hit banks with long term mortgages.
Mr Kearns said banks will face climate risks in their mortgage books as insurance becomes harder for customers to obtain, with the RBA warning banks also have less experience than insurers in modelling climate-related risks. Banks, meanwhile, had less experience and more work to do to develop the systems and procedures to manage climate risks, as well as analyse the right data.
“But if climate change makes a home’s location less desirable and significantly reduces its value, the borrower may have less opportunity to refinance or upgrade their property. “Because of the substantial uncertainty they face, banks use scenario analysis to consider how their exposure to climate change depends on various parameters and behaviours.”
“It is not only the banks that will learn from the CVA , but regulators will also learn how to better assess climate risk in the Australian financial system.”The banks have also all joined the Net Zero Banking Alliance, which was formed on the sidelines of COP 26 in Glasgow, pledging to achieve net zero emissions through their financing by 2050.
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