RBA Review submission: Equipping the RBA for a dynamic climate risk and transition response




RBA review submission: Equipping the RBA for a Dynamic Climate Risk and Transition Response

Equipping the RBA for a dynamic climate risk and transition response is a submission to the Commonwealth Treasury Review of the RBA, from the Centre for Policy Development’s Sustainable Economy Program.

The Reserve Bank is governed by a 63-year-old law that requires the RBA Board to contribute to economic prosperity and welfare. It makes sense to account for the realities of climate change and the need for a swift, just and orderly transition to net zero emissions to maintain the stability of the financial system.

The submission draws on CPD’s history of work on the economic and legal frameworks needed to navigate climate change.  In 2019, CPD hosted then-RBA Deputy Governor Dr Guy Debelle in a landmark speech on the economy and climate change.

What does the RBA review submission address?

The RBA review submission addresses the following questions.

  • What changes, if any, should be made to the objectives set out in the Reserve Bank Act (1959): stability of the currency, maintenance of full
    employment, and economic prosperity and welfare of the Australian people?
  • What improvements could be made to the set of inputs the RBA draws on to support monetary policy decision
  • What monetary policy tools should the RBA use in pursuit of its monetary policy
    objectives, and how can it use them most effectively in the future?

What does the RBA Review Submission recommend?

The RBA review submission recommends the RBA review update the central bank’s legislative mandate to consider sustainability, climate risks and opportunities, and the maintenance of net zero carbon emissions.

Short of a full legislative update, the submission also suggests other ways the government can clarify its expectations around the interactions between monetary policy, climate policy, and fiscal policy.

Recommendations also include an expanded role for green bonds in line with international practice, more advice from the Bank on economic responses to climate change, clear risk disclosure, and tighter expectations on corporate bond issuers.

Specifically the RBA Review recommends:

  • The RBA issue annual climate risk disclosure consistent with international frameworks and standards
  • The Treasurer should issue a ministerial direction clarifying the Federal Government’s expectations of climate risk disclosure by public authorities
  • The RBA Governor and Federal Treasurer should set out how the RBA will address climate-related issues and support the net zero transition in the next Statement on the Conduct of Monetary Policy
  • Climate change should be included in an RBA Board skills matrix
  • Adequate staff time, resources and in-house skills on climate change to fully address the complexity of the issues
  • Advocate for the further market development of green sovereign debt offerings by Australian and international issuers, with reference to appropriate standards and taxonomies
  • Reinforce the importance of optimal responses to address climate-related financial instability to avoid an over-reliance on monetary interventions
  • Adjust collateral eligibility rules so that only corporate bonds created by issuers who are disclosing climate- related risks with reference to best practice global standards and frameworks are accepted as collateral from counterparties
  • Review all collateral eligibility rules and haircuts, including through engagement with credit rating agencies, with a view to integrating climate risk considerations
  • Section 10 of the Reserve Bank Act 1959 is amended to add the following objective – “d) an orderly transition to, and maintenance of, net zero greenhouse gas emissions, and management of climate-related risks and opportunities”; or
    • Objective (c) of Section 10 of the Reserve Bank Act 1959 is amended to: “the economic prosperity, sustainability and welfare of the people of Australia”; or
    • The Treasurer issues a ministerial direction to the RBA Board clarifying the government’s view of how existing objectives relate to climate-related issues

The RBA Review Submission in the media

In its submission to the review of the Reserve Bank, independent think tank the Centre for Policy Development said the RBA’s role in achieving net zero emissions had to be made part of its overriding objectives, with more bank staff
In a submission to a review of the central bank, the Centre for Policy Development (CPD) says a stronger climate role for the RBA would guide the shift to a net-zero economy and limit fallout for the financial system.