Moody’s backs new disclosure rules on climate risks

  • By AB+F Editorial

The recent disclosure guidelines for banks and insurers to improve transparency and reporting of climate-related risks are a credit positive for the sectors, according to an assessment by Moody’s.

Recently the Climate Measurement Standards Initiative (CMSI), an industry-led collaboration between insurers, banks, scientists, regulators and service providers launched a set of voluntary guidelines that would provide Australian banks, insurers and other financial institutions with consistent scientific and technical guidance on how to assess the risk and disclose the financial impact of climate-related risks.

National Australia Bank chief risk officer Shaun Dooley said at the time that guidelines would make it easier to understand and compare disclosures.  

“We hope the robust scientific information provided to support the use of scenarios for climate-related risk analysis will help build increased confidence in climate analysis undertaken by the finance sector and enable informed decisions about climate-related risks and opportunities,” Dooley said.

Broadly, the guidelines recommend disclosures should be made for 2030 and 2050, with consideration for shorter time frames aligned with business planning and 2090 if relevant.

The disclosures also take a more granular approach.

The guidelines now recommend that when material to the business, disclosures should be split up by portfolio (eg home loans, commercial loans, commercial insurance, personal insurance), by hazard (eg tropical cyclones, floods, bushfire etc.) and by geographic region.

Furthermore, specific accounting items and metrics (listed in the CMSI guidelines) should be disclosed, in line with existing financial reporting accounting standards.

Disclosures should describe both the confidence and uncertainty in the critical assumptions made, with the scientific report providing views on the confidence in expected behaviour of physical risks under the two scenarios.

Resilience can be disclosed via several factors (listed in the CMSI) and will be more closely developed over time.

“Moody’s views the guidelines, while voluntary, are credit positive for Australian financial institutions as they will provide a framework for understanding and reporting on climate-related financial risks in line with the Task Force on Climate-related Financial Disclosure recommendations,” Moody’s vice president Frank Mirenzi said.

“They will also improve the transparency and comparability of climate-related risk disclosures.”