The Australian Prudential Regulation Authority (APRA) will take a more active role monitoring for climate change risks to the financial system, Executive Member Geoff Summerhayes says.

The Paris Agreement, Financial Stability Board work on business disclosures and new legal opinion on directors’ responsibilities related to climate risks are raising the stakes, he told the Insurance Council of Australia annual forum in Sydney on Friday.

“The days of viewing climate change within a purely ethical, environmental or long-term frame have passed,” he said. “More and more, the conversations we are having are about the practical realities and consequences of a changing climate.”

The former Suncorp executive says the focus on potential climate risks has extended beyond natural disasters to include transition risks from changes in policy, law, markets, technology and prices.

“Inevitably, even under a sanguine view of how smoothly this transition happens, there will be systemic impacts and implications that have to be carefully monitored,” he said.

That monitoring may include more sophisticated scenario-based analysis of climate risks at the company level, while APRA may examine risks as part of its system-wide stress testing.

A legal opinion released in November by the Centre for Policy Development and the Future Business Council found company directors who fail to properly consider and disclose foreseeable climate-related risks to their business could be held personally liable for breaching statutory duties.

“The possibility of legal liability heightens risks for companies that aren’t responding – one of the many ways, including damage to valuation and reputation, that failure to be on top of this issue might manifest,” Mr Summerhayes said.

He expects regulated entities to rise to the challenge alongside APRA.

“These are shared responsibilities. When things go wrong, it reflects badly on all of us – regulators, entities, governments and the entire financial ecosystem.”

Sharanjit Paddam, convenor of the Actuaries Institute’s climate change working group, says Mr Summerhayes’ comments are a timely reminder that businesses, politicians and the community should not ignore climate risks.

“We are pleased to see APRA is approaching this issue proactively and in sync with other regulators around the world,” he said.