Climate policy has never been easy in Australia. But despite the debates of the past, Australians are pretty used to many of the policies that seek to regulate carbon emissions in our everyday lives. We know how to purchase green power for our homes; that our buildings are regulated for the energy they use; and that our household appliances come plastered with energy-efficiency star ratings.

But what about our bank accounts, our super, our insurance policies and investment funds? How does our money contribute to causing – or preventing – dangerous climate change? How much financial risk are we exposed to from the effects of climate change, or from a delayed, bumpy transition to a low-carbon future? What are policymakers and regulators doing about those risks? Climate Risk and the Financial System, a new report from the Monash Sustainable Development Institute, addresses these fundamental questions.

This second type of climate risk and opportunity – the massive implications of climate change for the financial system – is a fairly new frontier in climate policy. It has developed rapidly over the last three to four years internationally, and is now reaching Australia, where both the potential risks and opportunities raised by finance sector and regulatory reforms to address climate change are immense.

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These reforms have their roots in the last financial crisis and a growing determination by international policymakers to avoid climate change being the cause of any future crisis. Two events pushed them to the top of the agenda: the landmark speech of highly respected Bank of England governor Mark Carney in September 2015 on the potentially grave risks to financial markets from climate change; and the Paris agreement in December of the same year, which firmly and for the first time placed a key responsibility upon the finance sector to shape the transition to a low-carbon economy.

Both raised the clear risk of trillions of dollars of high-emitting assets – including coalmines, power stations, oil rigs and gas plants – becoming “stranded” (ie devalued or worthless) assets in a world shifting rapidly out of high-carbon activities.

Australia is disproportionately exposed to such risks due to its highly carbon-intensive economy and its rebounding levels of emissions since 2013. Yet Australia also stands disproportionately to benefit from a successful low-carbon transition, with a world-class solar and wind energy resource base, mineral resources critical to battery production and a large and sophisticated funds management industry on hand to provide financial services to realise these opportunities.

This makes it all the more important for Australia to study the rapid progress made on the international sustainable finance policy agenda in recent years, and to draw on this experience for its own reform process.

For example, central bankers and financial supervisors have started to tackle the risks of climate change, establishing the Network for Greening the Financial System (NGFS) in 2017. From an initial founding coalition of eight members, the network has grown within 18 months to number 35, including the Reserve Bank of Australia. Each has committed itself to “contribute to the development of environment and climate risk management in the financial sector, and to mobilise mainstream finance to support the transition toward a sustainable economy”. This is new terrain for traditionally conservative institutions, speaking to a growing urgency behind this agenda.

Further, Europe has embarked on a comprehensive sustainable finance policy reform agenda. Initiated in late 2016, and moving to policy design and implementation from early 2018, it includes important down payments in reforming sustainability benchmarks, disclosure regulations, investor duties and in defining a “taxonomy” of sustainable activities. These will have a large impact also beyond Europe’s shores, both since they apply to businesses operating in the vast European Union capital market, but also because of the best practice example they offer for others to copy.

The United Kingdom ran its own related policy reform process, reporting in March 2018. Government has yet to respond, but the process signals an interesting pro-green finance direction at odds with fears that the UK would turn in a deregulatory direction once freed from European frameworks. Both Canada and New Zealand have convened similar expert panels to push sustainable finance reform.

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Intriguingly for Australia, our largest trading partner China has moved with speed on the same agenda, mandating liability insurance for environmental pollution and disclosures of environmental information. The potential size of China’s green finance sector gives these reforms an international resonance beyond their domestic impacts.

In conclusion, Australia has numerous positive reform examples to draw on. The recently announced Australian Sustainable Finance Initiative brings together finance sector leaders to develop a roadmap for the sector to address climate risk. Key industry players are aligned, domestic regulators have done solid groundwork, and there is a well-defined set of international best practices and international fora within which best practice can rapidly be transmitted. All the ingredients are there for Australia to catch up with the rest of the world, and quickly.

• Chris Barrett is executive director, finance strategy, at the European Climate Foundation and former Australian Ambassador to the OECD. Anna Skarbek is CEO of ClimateWorks Australia. They are the authors of Climate Risk and the Financial System