Election 2020: Financial sector will have to report on climate change risk in world-first move
Roughly 200 of New Zealands biggest companies and financial organisations will be made to report on climate change risk, Climate Change Minister James Shaw has announced. The policy will force large financial organisations in New Zealand to disclose how exposed their business and investments are to climate change-related risk. Some entities, such as the NZ Super Fund, are already proactively disclosing such risks, ahead of the mandatory regime. Any bank, credit union, building society, investment scheme, insurer, or Crown Financial Institution with more than $1b in assets will be required to either disclose this risk or explain why it has not. These 200 or so institutions will cover 90 per cent of the assets controlled in New Zealand, and includes large Crown investors such as ACC and the NZ Super Fund. READ MORE: * First climate change risk assessment lays out long list of threats * What happens when businesses come clean on climate change costs * Dodging disaster with climate disclosure Risks could include physical risks from climate change such as extreme weather events or rising sea levels, as well as economic risks such as more stringent regulation of carbon emissions. Businesses will have to make annual disclosures about the risks, how they are managing them, and how they plan to mitigate climate change impacts. If they are unable to do this they must explain why. While other countries are working on similar schemes, New Zealand is the first to introduce one although entities will not be required to report on climate risk until 2023 at the earliest. Shaw said the changes would require new legislation, which would be introduced by the next Parliament. He said the reporting standards themselves would be drawn-up by an External Reporting Board (XRB). Entities covered by the new rules would either have to report to those standards or explain why they choose not to. 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, Shaw said. 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. Many large businesses in New Zealand do not currently have a good understanding of how climate change will impact what they do. The changes I am announcing today will bring climate risks and resilience into the heart of financial and business decision-making. It will ensure the disclosure of climate risk is clear, comprehensive and mainstream. Internationally, this sort of risk disclosure has been fought for by former Governor of the Bank of England Mark Carney and former New York Mayor Michael Bloomberg. They estimated trillions of dollars of unquantified risk sitting on corporate balance sheets worldwide. The NZ Super Fund said it welcomed the move. Climate change is one of the most defining and complex issues of our time, and as a major investor in New Zealands capital markets we support mandatory reporting on climate change performance and risk, NZ Super Fund CEO Matt Whineray said. Whineray called on the Government to extend the rules to make them cover more companies. In addition to listed equities and debt issuers on the NZX, wed like the requirements extended to private companies over a certain size, given the increasing importance of that investment class, he said. The Super Fund will be getting ahead of the mandatory regime by releasing its first climate risk report next month. The Financial Markets Authority will be responsible for the independent monitoring of the reporting. Nobel Prize-winning economist Joseph Stiglitz congratulated New Zealand on introducing the scheme. Once again, New Zealand is leading the world, Stiglitz said, in a video included with the press statement from Shaw. In a statement, the Responsible Investment Association Australasia welcomed the announcement. This marks a significant step forward and demonstrates New Zealands exemplary leadership on the global issue of climate change and the sustainability of New Zealands financial system and economy, RIAA chief Simon OConnor said. New Zealands future resilience and prosperity depends on being able to navigate climate change risk.