Climate Change - Information Note for Appointed Actuaries 2023
Climate change is a material strategic risk and one of the major challenges facing financial institutions today. Regulators recognise that the financial risks associated with climate change could undermine financial stability and are quickly increasing their expectations around the measurement and management of climate change risks and opportunities. Investors are demanding disclosures on climate risks and opportunities, with the Task Force on Climate-Related Financial Disclosures (“TCFD”) now seen as the global standard, the recent release of the International Sustainability Standards Board IFRS S1 and S2 standards, and the Australian Treasury in the process of consulting on mandatory climate disclosures for certain entities.
This Technical Paper provides Appointed Actuaries with an outline of how insurance operations may be impacted by climate change and offers suggestions to address these issues in a Financial Condition Report. Australian Prudential Regulation Authority’s (“APRA”) Prudential Standard CPS320 outlines the requirements for the Appointed Actuary (“AA”) in writing a Financial Condition Report. In this note we refer to individual sections of this prudential standard where appropriate
This information may also be helpful in many other situations when advice is provided to financial institutions. It is noted that climate change is just one aspect within wider sustainability considerations. Sustainability is commonly defined as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”, where human needs include a sound environment, a just society and a healthy economy. Given the regulatory focus on climate change and considering that actuarial involvement in climate change is more developed, this Technical Paper addresses climate-related risks and opportunities only.
This Technical Paper does not constitute legal or financial advice.
Any interpretation or commentary within the Technical Paper regarding specific legislative or regulatory requirements does not guarantee compliance under applicable legislation or regulations. Accordingly, Members are encouraged to seek clarification from the relevant regulator and/or seek legal advice in the event they are unsure or require specific guidance regarding their legal or regulatory obligations.
Climate change is a rapidly evolving area; members are encouraged to refer to the latest legislative and regulatory requirements and to consider the wide range of information sources available beyond those mentioned in this paper. The information presented in this paper is generic and does not allow for the unique nature of each organisation. This paper is for education and information only and a member should rely on their own research and analysis in forming their views and giving advice.
Members should also refer specifically to the following APRA regulations:
- Prudential Standard CPS320 Actuarial and Related Matters.
- Prudential Standard CPS220 Risk Management.
- Prudential Standard CPS510 Governance.
- Prudential Practice Guide CPG229 Climate Change Financial Risks.
This Technical Paper does not override the requirements in these documents or in any other Professional Standards, Practice Guidelines or other Regulatory Standards that are relevant to this area of work.
This Technical Paper was prepared by a subgroup of the Climate and Sustainability Working Group. Ongoing feedback from Members is encouraged; any feedback should be directed to the Climate and Sustainability Working Group via
ppd@actuaries.asn.au.