Adrian Orr to step up conversations on climate change
Reserve Bank governor Adrian Orr says the bank will be increasing the number of conversations it has about climate change over the coming year. The impacts of climate change were already here, and those impacts are increasing, he told a conference in Auckland on Monday. The last few months have had no shortage of extreme weather linked to climate change across the globe, with record beating temperatures and droughts. Here in New Zealand, last year set a new record for weather-related insurance payments and this year is on pace to break the record, he said. READ MORE: * Reserve Bank "climate stress testing" the risk of flood-prone homeowners, farmers defaulting on loans * Companies will report climate risk, but they need more certainty from politicians * Climate change brings trillions of dollars in risk to businesses * Reserve Bank voices fears climate change will render homes uninsurable In July, former Reserve Bank governor Graeme Wheeler and New Zealand Initiative researcher Bryce Wilkinson queried central banks interest in climate change policy, suggesting that lay outside their areas of expertise and responsibility . They also accused the Reserve Bank of being distracted by a Maori world view of its operations. But Orr said the bank could reduce the impacts of climate change on Aotearoas financial system. Assessing material risks to banks and insurers, and the financial system as an ecosystem, is our core business, he said. To meet our financial stability objective, its important for us to take account of the current and future impacts of climate change. Orr said the Reserve Bank had introduced a climate change risk element into its annual solvency stress test of the financial system last year, by including a two-year North Island drought into its disaster modelling and conducting its first stress test of the insurance industry. This years exercises will build our own and industry capability and inform our climate-scenario stress test next year, he said. The Reserve Bank was also working on the draft text of a guidance note on climate change risk management for the businesses it regulates, which include the banks, he said. From next year, about 200 of New Zealands biggest businesses will be required to report annually on the climate-related risks they face. The next 12 months will see an increase in conversations with entities as we build our understanding of the prudential implications of climate change, Orr said. We will be discussing the responsibilities, oversight and implementation of entities climate strategies and risk management, and the practical steps they are taking towards mandatory climate-related disclosures. Financial services consultant and former Reserve Bank senior staffer Geof Mortlock, who has been another critic of the bank under Orr, said he didnt have an issue with the Reserve Bank considering climate change risks in its supervisory role. That was as long as it took a narrow focus anchored to financial stability which comes within the role of the central bank, he said. What would worry me is what Orr didn't say, but what they might do, which is to go down the route of using macro-prudential policy tools to try to channel bank lending into industries that have close to zero emissions. That would be starting to micro-manage how banks go about their lending decisions and that is not the role of the central bank. Mortlock said he didnt know whether that was the Reserve Banks intention, but said it had shown a tendency to micro-manage in others areas. I just fear they are a bit of an unguided in some ways, he said.