New Zealand has become the first country in the world to make climate risk reporting mandatory for banks, asset managers and insurers.
Under new legislation announced on Tuesday morning, large financial institutions would be required to report annually on governance, risk management and strategies for mitigating climate change impacts.
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| New Zealand Prime Minister Jacinda Arden has made climate change policy one of her government's priorities. Getty Images |
“Australia, Canada, UK, France, Japan, and the European Union are all working towards some form of climate risk reporting for companies, but New Zealand is moving ahead of them by making disclosures about climate risk mandatory across the financial system,” he said.
The requirement will apply to around 200 institutions, including banks and institutional investors with more than $NZ1 billion ($920 million) in assets, and insurers with either $1 billion in assets or annual premium income of more than $NZ250 million. The new regime requires parliamentary approval and would not come into force until 2023.
“What gets measured, gets managed – and if businesses know how climate change will impact them in the future they can change and adopt low carbon strategies. COVID-19 has highlighted how important it is that we plan for and manage systemic economic shocks – and there is no greater risk than climate change,” Mr Shaw said.
“I often tell the story of the chief executive who said to me during the passage of our Government’s Zero Carbon Bill that his young daughter had told him one evening that she no longer wanted to have children because of the climate crisis. 'What do I say to her?' he asked me.
“Today I am pleased I can say to him that businesses up and down the country will now play their part in making this world cleaner and safer – a world I am sure he is hoping will one day be home to his grandchildren.”
Prime Minister Jacinda Ardern has made climate change one of her government's policy priorities, last year passing the Zero Carbon Bill, which provides a legal framework to push the nation to its goal of net zero carbon dioxide emissions by 2050.
Green finance groups welcomed Tuesday's announcement.
“This requirement makes a pivotal contribution to New Zealand’s comprehensive engagement on climate change and helps New Zealand to deliver upon its commitment to the Paris agreement," said Simon O’Connor, chief executive of the Responsible Investment Association of Australasia.
"Once implemented, investors will be better able to price and value companies within the portfolios they manage, as well as realign portfolios to contribute to a lower carbon world.”
Emma Herd, chief executive of the Investor Group on Climate Change, said the Ardern government's announcement was "a crucial step".
“Ultimately all countries, including Australia, must move towards implementing a robust and investable mandatory climate risk disclosure regime to manage the systemic risk that climate change presents," she said.
While Australia is yet to mandate specific climate risk reporting, the Australian Prudential Regulation Authority has told financial institutions it expects them to report on the risks under existing prudential rules. It has endorsed the use of the TCFD framework.
Australia's major banks and insurers have taken this seriously, joining forces with climate scientists to create the Climate Measurement Standards Initiative.
On Monday the CMSI published the nation's first comprehensive climate change reporting framework.
Links
- New Zealand first in the world to require climate risk reporting
- New Zealand minister calls for finance sector to disclose climate crisis risks in world first
- Mandatory NZ financial disclosure regime a critical step towards managing climate risk
- Mandatory climate-related financial disclosure proposed
- New Zealand first in world to require climate risk reporting
- Banks, insurers, NZX-listed companies and fund managers among those to be required to report on climate risk under new regime to be overseen by the FMA
- Mandatory climate-related financial disclosures
- NZ to mandate climate risk disclosure
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