Australian banks first in line for climate stress tests

The banking regulators have fallen into the hands of the Greenies. So banks now must not lend to projects Greenies disapprove of.  

If they do it will be regarded by the regulators as a "risky" investment, even if the only risk is from global warming and is hence an entirely fictional risk. 

Greenie investments will be favoured over rational ones, thus greatly limiting bank support for many industries -- such as mining and dam building

Stress tests of banks by regulators have a legitimate role. They make sure banks do not overlend or lend foolishly.  They aim to stop banks going broke.  So they control what banks can do.  But the stress tests are now being perverted so that only Greenie-approved investments are regarded as safe. 

The truth is probably the opposite:  Greenie investments are the risky ones, not the safe ones.  Remember Solyndra?

Australian banks will be the first sector in the firing line for the prudential regulator's tough new institutionally focused climate change stress tests, which will be rolled out following the launch of new economic and environmental scenario modelling by global central banks next year.

The Australian Prudential Regulation Authority will target the $45bn general insurance sector with its audits on the vulnerability of companies to a potentially "disorderly" transition to a low-emissions economy.

Finally, superannuation fund managers overseeing the nation's $3 trillion pile of retirement savings will feel the heat of APRA's soon-to-be-launched climate stress tests, which will measure how the funds are preparing their portfolios for an unpredictable future in which asset prices could fluctuate wildly depending on the rate of warming of the planet or
the policies put in place to achieve emissions targets.

Regulatory sources have confirmed to The Weekend Australian the running order for the sectors soon to face an Australian prudential probe measuring the exposure of banks, insurers and super funds to both the physical risks of climate change such as floods, droughts, fires or cyclones — and the economic "transition" risks, such as orderly or abrupt changes in prices, possible stranded assets, or long-term productivity changes.

The insights from the stress tests could be used to encourage companies to exit potentially risky assets or investments, re-price policies or loans, or even to force banks and insurers that refuse to ready themselves for an unpredictable climate to hold more capital as a buffer in times of crisis. The climate models to be used to analyse the financial strength of companies are being developed by an international group of regulators, chaired by Bank of England governor Mark Carney, who this week warned that large financial groups in the UK would imminently face the world's toughest climate stress tests.

As revealed by The Australian this week, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), chaired by Mr Carney, is due to finalise a number of climate transition scenarios in the first half of 2020, at which point APRA will begin tuning the economic models to the local context to begin stress testing large financial institutions.

The Reserve Bank, a member of the group, will use the financial models to analyse economy-wide impacts of climate change and policies seeking to shift the nation to a low-emissions future. The Australian Securities & Invest-ments Commission will also be engaged in the work, mostly through monitoring whether companies are properly disclosing known risks to shareholders.

Mr Carney this week said the BoE would measure UK financial companies against three scenarios, which were under development by the NGFS. "The catastrophic business-as-usual scenario where no further climate action is taken, a scenario where early policy action delivers an orderly transition to the targets set in Paris, and a third where late policy action leads to a disorderly and disruptive transition," Mr Carney said.

This aligns closely to recent remarks by APRA executive Geoff Summerhayes, who chairs the global Sustainable Insurance Forum, who said Australian regulators were contemplating "three broad models" of climate change scenarios and what the ensuing "implications would be for assets and business models" stemming from those scenarios.

"A hothouse world, where there is no discernible change to the warming profile; an orderly adjustment to a lower-carbon future, which would envisage a significant amount of transition risk, albeit smooth; and a late adjustment where the world continues to warm and there is a realisation from a policy sense much later in the piece which requires a very rapid ,adjustment to a lower-carbon future,"

Mr Summerhayes told parliament this month: "Each of those scenarios has implications for the pricing of assets, for business models, for physical impacts and liability impacts to a range of firms' investments."

Fitch Ratings head of sustainable finance Andrew Steel on Friday said the gap between how ambitious global governments pledge to cut emissions and the actual policies in place to reach those targets highlighted the "risk of a sharp shift" in the global regulatory environment.  Mr Steel said the possibility that global governments could ratchet up carbon pricing policies to meet emissions targets was a key risk to company credit ratings.

From "The Australian" of 21 December, 2019

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