Climate change poses risk to Australia's financial stability, warns RBA deputy governor

Guy Debelle urges policymakers and business to address global warming as a trend rather than a temporary weather cycle

A deputy governor of Australia’s central bank has issued a stark warning that climate change poses risks to financial stability, noting that warming needs to be thought of by policymakers and business as a trend and not a cyclical event.

As a debate over coal and energy fractures the Morrison government, Guy Debelle warned a forum hosted by the Centre for Policy Development on Tuesday that climate change created risks for Australia’s financial stability in a number of different ways.

“For example, insurers may face large, unanticipated payouts because of climate change-related property damage and business losses,” he said. “In some cases businesses and households could lose access to insurance.

“Companies that generate significant pollution might face reputational damage or legal liability from their activities, and changes to regulation could cause previously valuable assets to become uneconomic.

“All of these consequences could precipitate sharp adjustments in asset prices, which would have consequences for financial stability.”

Debelle noted Australia had traditionally come at the climate change debate largely through the prism of its impact on agriculture, but he said the changing climate created “significant risks and opportunities for a broader part of the economy than agriculture – though the impact on agriculture continues to be significant”.

He said policymakers and businesses needed to “think in terms of trend rather than cycles in the weather”.

“Droughts have generally been regarded, at least economically, as cyclical events that recur every so often. In contrast, climate change is a trend change. The impact of a trend is ongoing, whereas a cycle is temporary.”