The financial regulator is ramping up pressure on the sector to respond to climate change risks, warning that a failure to act now will only raise economic costs in the long run.

An executive board member of the Australian Prudential Regulation Authority (APRA), Geoff Summerhayes, on Friday said that as countries grapple with how to respond to climate change, the long-term costs of inaction should not be forgotten.

No hipster beard... APRA's Geoff Summerhayes. Credit:Jessica Hromas

He acknowledged that taking action to reduce carbon emissions now involved "significant transition risks," but the payoff was that it lowered the "catastrophic physical risks" of climate change over the long term.

APRA is "embedding" climate risk into its supervision of banks and other institutions, and Mr Summerhayes said it wanted to see "continuous improvement" in how these businesses prepared for the shift to a low-carbon economy. He said "forward-thinking' businesses were already trying take advantage of opportunities such as green finance.