Financial Stability at Risk: Australian Government’s Climate Risk Assessment

12 March 2024
The volatility of climate change will spread to Australia’s financial sector, according to the first national risk assessment released by the Australian Government.

Investors welcome the release of the first pass National Climate Risk Assessment. In consultation with experts, the Australian Government has correctly identified that financial stability is at risk if the physical damages of climate change are not effectively managed.

“Super funds and investment managers have a legal duty to act in your best financial interest and have assessed that climate change damages are amongst the largest risks to long-term retirement savings,” said Erwin Jackson, Managing Director, Policy, at the Investor Group on Climate Change.

“Climate volatility means economic volatility, so addressing climate change systematically is essential for protecting the retirement savings of millions of Australians. We must have a fair and fast transition to net zero emissions, but we must also adapt.

“The cost of extreme climate events topped  $30 billion annually in 2021. Climate damages mean higher insurance bills and less profitable companies in sectors like agriculture. Recovery costs mean less money to spend on productive industries such as infrastructure and education. Climate volatility drives up the cost of everything.”

“Given the long lead times for building infrastructure that can withstand climate damages, it is essential that transformational adaptation starts now.”

Investors have been asking for a national risk assessment for a decade. Without credible physical risk assessments and effective adaptation, the financial damage from climate change will be much higher, and there is risk of capital flight from Australia’s many areas that are vulnerable to the physical impacts of climate change.

This Assessment is an essential first step to ensure that a range of stakeholders, including governments and investors, have a shared understanding of physical climate risks and can work together on adaptation priorities.

“There is limited use in making your port resilient to climate damage if the railway to the port is exposed and is owned by another company you don’t own. Climate change is a systemic risk that needs a system response.

“Governments have a role to play and so do business and investors across our entire economy. Investors look forward to building on this first pass assessment and working with the Australian Government on initiatives that can incentivise and remove barriers for private sector investment in adaptation across the economy.”