The Australian Prudential Regulation Authority has been undertaking a "climate vulnerability assessment" of the major banks.

The CVA study is measuring the potential financial risks to large banks, the financial system and economy posed from climate change.

"Climate risks may affect the balance sheet of financial institutions," the report said.

It is expected similar assessments in the future could cover the insurance and superannuation sectors.

APRA is also looking at launching an annual climate risk self-assessment survey for banks and other regulated entities.

Work is under way on understanding how banks may adjust their business models and implement management actions in response to different scenarios, and improve banks' climate risk management capabilities.

The report released by the Council of Financial Regulators on Wednesday said while the CVA was the top priority work was being done on the quality of climate risk disclosures by companies and setting standards for defining what is a "sustainable" activity or financial product.

Australian Associated Press