CBA is the country’s largest home lender,holding $556 billion in mortgages in Australia. While the number of mortgages assessed as high risk due to climate factors was only a fraction of its overall home-loan portfolio,about two-thirds of major bank lending is for residential mortgages,making any change in housing values a risk.
The bank also looked at ABS employment data and locations of mines and ports,and analysed the potential timing and scale of changes of Australian coal export demand to estimate the probable impact to economic activity and employment opportunities in areas reliant on the coal value chain.
The report said communities with workforces highly concentrated in fossil fuel-related industries were likely to be significantly impacted under varying Paris-aligned scenarios.
“The concentration of a local area to the fossil fuel value chain increases the risk that indirect employment and broader economic value,including residential property values in these regions,is reduced as a result of a significant reduction in global coal demand,” the report said.
There was a range of uncertainties when undertaking climate scenario analysis,the bank noted,adding that CBA was still in the early stages of developing the approach and more was needed to improve granularity and accuracy.
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The Reserve Bank has previously warned that property in parts of Australia exposed to climate change and wild weather could experience valuation declines that left banks with less protection in the event of a default.
About 3.5 per cent of dwellings in Australia fall under an international definition of being at “high risk” from climate damage,RBA economists said in a research paper.
But they note it’s the rise in climate risk not yet reflected in property prices that is key when considering banks’ exposures in climate-sensitive regions.
A CBA spokesman said a key part of their approach was to provide more quality data to help with the transition to net zero. The bank is partnering with the CSIRO to produce emissions transition scenarios for the residential sector,which they intend to make publicly available.
The Australian Prudential Regulation Authority is working with the nation’s largest banks to identify their potential vulnerability to climate change amid growing global recognition of the risks it poses to the entire financial system. The findings of APRA’s Climate Vulnerability Assessment are expected this year.
Former APRA member Geoff Summerhayes,who works with climate change advisory business Pollination,said Australia’s biggest financial institutions had significantly lifted their engagement,oversight and disclosure of climate risks recently,which was “pleasing and reassuring to see”.
“Notwithstanding the efforts to decarbonise the economy,the climate has already changed and will continue to warm for decades to come,” he said. “It is therefore also essential,for financial institutions and businesses,to build resilience into their operations and understand how they will need to adapt their operations for a warmer and more volatile climate.”
Adrian King,head of climate change and sustainability services at KPMG,saidtheir research had found that while Australian banks had been leading for many years when it came to disclosing climate risks,the pace had slowed in recent years when compared with international competitors.
“The pace of change is so fast in this area,” he said. “They used to be ahead of the pack,but unless they are moving at an extraordinarily fast pace,they are probably going to fall behind international peers at some point.”
He said there had been good progress in recent months,with all four big banks joining the UN’s Net-Zero Banking Alliance,which provides a logical and clear pathway to doing these calculations.
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