Australia's banking regulator will push banks, insurers and superannuation funds to properly account for climate risks under an updated charter.
The Albanese government has released an updated Statement of Expectations for the Australian Prudential Regulation Authority (APRA).
The statement sets out how the government expects the regulator to carry out its responsibilities to keep the sector financially sound.
For the first time, the regulator is explicitly required to consider risks related to climate change as part of its work, Treasurer Jim Chalmers said.
"Our priority is to ensure Australia’s financial system remains stable and robust and that the regulator is responsive to changing economic conditions," Dr Chalmers said.
"This includes promoting transparency in relation to financial risks and the adoption of climate reporting standards."
The statement released on Wednesday focuses on APRA's role in ensuring a safe, resilient and competitive financial system.
But it adds "promote prudent practices and transparency" on climate-related financial risks and the adoption of the new standards as a priority.
The government has also added an expectation that APRA be mindful that new regulations can be more onerous and costly for small businesses to manage.
Betashares director Greg Liddell said requiring the regulator to consider climate-related financial risks was a welcome step that would help protect shareholder value.
Other jurisdictions, such as the European Commission, have implemented similar requirements, including so-called "double materiality" that brings environmental impacts into traditional financial accounting.
Mr Liddell said it was an important principle the federal government and APRA could use in Australia.
Energy finance expert Tim Buckley said the treasurer has made clear he considers national strategic interests to be a crucial consideration in institutional investment objectives and wants his legacy to be Australia's clean energy transformation.
"We need the right APRA benchmarks to align our massive superannuation investment pool with the massive transition opportunities staring Australia in the face," Mr Buckley said.
A recent report called for the regulator, the Foreign Investment Review Board, the Future Fund, Northern Australia Infrastructure Facility and "your future your super" mandates to be aligned with national climate laws.
The Climate Energy Finance report estimated $100 billion of public capital would attract about $300b of private investment.
Sovereign green bonds slated to begin in mid‑2024 will also enable investors to back climate investments.
