Australia’s financial system is ill-prepared for the impacts of climate change, an issue ignored in the Abbott government’s inquiry led by David Murray.
That’s the view of the Climate Institute in a new discussion paper that warns of the threats to Australia’s banking, insurance and superannuation sectors.
It says although several submissions made to the financial system inquiry in 2014 referred to climate risk, its final report made no mention of the issue.
“This risk deserves closer examination by our policy markers and financial regulators,” Climate Institute CEO John Connor says.
The report warns that with two-thirds of banks assets tied-up in residential property mortgages they have a high exposure to the effects of climate change in a country which has mostly coastal dwellings.
The Queensland floods in 2014 also highlighted the risk of economically destructive events away from the coast.
It says many Australian properties are under-insured, particularly those considered to be vulnerable, and banks have “limited visibility” of their exposure due to the lack of property insurance verification beyond the first year of a mortgage.
It says insurers do not spread risk adequately across geographic areas, rather they calculate on a specific area that results in rapidly rising premiums in response to specific events.
“It demonstrates that insurers will not redistribute higher risks from some households, but will instead leave some properties uninsurable,” it says.
The carbon intensive nature of the economy and the stock market suggests a significant number of Australians may be exposed to climate risk through their superannuation and higher than the international mean.
It says industry efforts to manage this risk remain voluntary and non-standardised, and individuals may have limited ability to make informed decisions.
“With exposure to climate risk in so many parts of the financial system and the economy, there is a pressing need for focused regulatory attention,” it says.