CBA flags billions in mortgages exposed to climate risk

The Commonwealth Bank’s (CBA) climate risk assessment of its home loan portfolio found that $31.2 billion in mortgages were for homes in areas “exposed to increasing risk such as cyclone-exposed coastal regions, low-lying flood plains and rural areas in close proximity to the urban fringe.”

The 60-page report was the bank’s first climate analysis and assessed how the physical and transition risks of climate change could impact the bank’s business.

The study revealed 56,000 properties with mortgages ($19 billion) were at risk of floods and 5,000 ($2 billion) at risk of fire, while 38,000 properties with mortgages were assessed as having a “high risk” of exposure to cyclones, which totalled $11 billion.

In addition, cyclones were predicted to continue forming further south, having the potential to impact populated areas not previously exposed to cyclone risk.

“If this happened in the north of NSW, where construction standards have not been designed to resist cyclones, material losses could be observed which are not currently reflected in our current estimates,” the report said.

“In particular, peril risk ratings reveal increases in cyclone, flood and fire risk by 2050.”

Given Australia’s transition out of coal, the bank also identified $14 billion in mortgages were in communities dependent on the industry placing them at “mid to high” level of climate transition risk.

As changes to the climate accelerate, the report signalled the importance of considering “opportunities climate change presents” and enhancing the management and monitoring of climate risks across its business.

“Climate change events can impact the continuity of the Bank’s operations through the safety and availability of our people; physical damage to facilities; disruptions to supplier services and the increased need for customer support and financial assistance services,” it stated.

Given the risks associated with climate change, it said it was “committed to playing a leadership role” in Australia’s transition to a net-zero emissions economy by 2050.

It has partnered with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) to “develop Australia-specific data and transition pathways for key sectors of the Australian economy consistent with limiting global warming to 1.5 degrees”.

“The research will help us set interim sector targets for our financed emissions,” the report said.

The CBA has also welcomed Australia’s updated national goal of achieving a 43 per cent reduction in greenhouse gas emissions by 2030, and said it will “continue to explore ways” in reducing the country’s overall emissions.

This year, the bank has aligned its temperature ambition to 1.5 per cent and joined the Net-Zero Banking Alliance, as well as strengthening its measurement and reporting on financed emissions.

As it seeks to support growth in sustainable industries, last year it announced its $70 billion Sustainability Funding Target. As at 30 June 2022 its pool of green, social and sustainable asset was $2.7 billion.

Looking ahead, the bank aims to disclose further targets across a range of sectors in the next two years, including the Australian home loans and commercial property market.

The Reserve Bank of Australia has also recently cautioned that properties in areas exposed to climate change could struggle to get insurance and property values plummeting.

[Related: Home values threatened as climate risk looms]