CANBERRA, AAP – Regulators and the financial sector have been warned they are making the same mistakes that led to the 2008-2009 global financial crisis when responding to climate change.
A new report co-authored by former head of the Australian Coal Association Ian Dunlop says while the financial sector is starting to grapple with risks posed by warming, it needs to act now.
The banking watchdog, the Australian Prudential Regulation Authority, has issued draft guidance to major companies on the financial risks of climate change, recommending they stress test their finances against temperature increases.
“After 30 years of inaction and rising carbon emissions, business and finance are finally beginning to take climate change seriously,” Mr Dunlop says.
“However testing the system for four degrees of warming is unrealistic. Scientists consider a rise of four degrees to be an existential threat to humanity and even three degrees of warming is considered catastrophic.”
He said international regulators failed to foresee the GFC and a similar failure on climate risks is on the agenda.
“It is not good enough to know that the bus is going over the cliff, as the regulators’ climate stress tests are telling us. The point is to stop the bus from going over the cliff in the first place,” Mr Dunlop said.
He said rather than testing scenarios, regulators and financial institutions should be mitigating climate risks, including by redirecting finance away from the fossil fuel industry into the new, clean economy.
“If the financial sector is to survive and prosper into the future, such precautionary action must keep temperature increase to a minimum, as close to 1.5degC as possible, coupled with drawing down carbon from the atmosphere,” Mr Dunlop said.
The report comes a week after the United Nations released its sixth Intergovernmental Panel on Climate Change assessment, warning global warming is on track to hit 1.5 degrees in the next decade and that many climate change consequences are irreversible.