The initiative will use science to develop reporting standards of the sort set out by the international Taskforce on Climate-related Financial Disclosure, but with a specifically Australian focus. The first draft of a new standard will be published in July.
Christopher Lee, chief executive of Climate KIC Australia – the not-for-profit organisation running the initiative – said the CMSI would help meet Australian Prudential Regulation Authority member Geoff Summerhayes’ call for a “common taxonomy” on climate risk in a speech last year.
In that speech, Mr Summerhayes made it clear APRA considered climate change a grave financial risk, and told financial institutions they must start reporting seriously on it.
“In the future there will not be sustainable finance and other finance, all finance will need to be sustainable,” he said. “Ultimately, there will only be one form of finance, and that will be green finance.”
Mr Lee said the CMSI would create “scientifically robust, common standard for industry disclosure and reporting of climate-related financial risks in Australia”.
“This will provide companies and regulators with a common understanding of the science and how model-based projections of climate variables can be integrated into physical risk scenario analysis,” he said.
Many of the CMSI’s funders, which also include RACQ, HSBC, Munich Re, Swiss Re, Leadenhall CP, the Investor Group on Climate Change and MinterEllison, are also members of the Australian Sustainable Finance Initiative, a project to develop new sustainable investment opportunities.
The launch of the CMSI comes a day after KPMG warned directors that treating climate change risk disclosure as a simple “box-ticking” exercise were exposing themselves to litigation, a risk also highlighted by former High Court judge Kenneth Hayne last year.
QBE chief executive Pat Regan said the initiative would “strengthen the standard of reporting and disclosure within the financial services sector” and “facilitate improved stakeholder awareness and understanding of climate-related risks and how individual companies are managing them”.
Suncorp chief executive Steve Johnston said: “Australia has some of the world’s best climate change scientists and this initiative will bring their expertise into the boardroom.
“These standards will assist companies and investors to better understand and evaluate climate-related financial risks and, importantly, helps us to focus on what needs to be done to ensure Australia remains insurable and bankable well into the future.”
Professor David Karoly, head of the Earth Systems and Climate Change Hub, called the initiative a “valuable and unique opportunity to collaborate with experts from Australia’s financial services sector” and a “timely opportunity to scope out how next generation regional climate projections can be utilised for scenario analysis by industry to inform climate change risks and associated decision-making”.
Climate KIC Australia was founded five years ago as an offshoot of its European counterpart, EIT Climate-KIC, which receives funding from the European Union.
Climate KIC Australia’s core funding comes from the state governments of Queensland, NSW, Victoria and South Australia, as well as Suncorp, University of Technology Sydney, Curtin University, and a number of smaller businesses.