New Zealand to force banks and insurers to disclose climate risks in world-first

The New Zealand government will introduce a mandatory requirement for the financial sector to disclose information about the threats that climate change poses to their business and prepare strategies for managing climate related risks and opportunities.

New Zealand Commerce and Consumer Affairs Minister David Clark said the country would become the first in the world to introduce such a requirement on the financial sector to assess, report and explain how they will manage the risk climate change poses to its business operations.

“It is important that every part of New Zealand’s economy is helping us cut emissions and transition to a low carbon future. This legislation ensures that financial organisations disclose and ultimately take action against climate-related risks and opportunities,” Clark said.

“Becoming the first country in the world to introduce a law like this means we have an opportunity to show real leadership and pave the way for other countries to make climate-related disclosures mandatory.”

The Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill was introduced into the New Zealand parliament on Tuesday, which will establish the new reporting requirements.

The legislation would place disclosure obligations on around 200 financial sector companies, including large banks, insurers, and investment managers, and will be based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.

New Zealand climate change minister James Shaw said it was important for the financial sector to assess and disclose the risks posed by climate change, as some businesses face existential threats from both the impacts of climate change and a transition to a low emissions economy.

“Requiring the financial sector to disclose the impacts of climate change will help businesses identify the high-emitting activities that pose a risk to their future prosperity, as well as the opportunities presented by action on climate change and new low carbon technologies,” Shaw said.

“Climate change will have a profound impact on businesses all over Aotearoa New Zealand. There are activities and assets that these businesses are involved in that will not hold their value in a low carbon world, simply because they emit too much climate pollution and contribute to the climate crisis.

“Similarly, there are technologies and activities that will cut emissions and become hugely valuable to the low carbon economy of the future.”

Investor groups have issued repeated calls for companies to release more information about the risks that climate change poses to their operations, as well as to develop strategies for how companies propose to deal with these risks so that investors can consider the potential financial risks.

Major investors and superannuation funds have described climate change as a financial risk, arguing that a changing climate and an ongoing transformation of the wider economy pose a risk to companies that are not adequately planning for a transition.

Investor Group on Climate Change (IGCC), which works with Australian and New Zealand institutional investors to address potential impacts of climate change and advocates for stronger government policy, said that other countries should be following New Zealand’s lead.

“This is important legislation from the New Zealand Government that will assist with managing the systemic economic risks created by climate change and protecting the long-term savings of all New Zealanders,” IGCC policy director Erwin Jackson said.

“Voluntary disclosure regimes have made good progress but are not delivering the rigour and consistency needed by financial markets to fully assess and address climate risk. The mandatory New Zealand regime goes a long way to addressing this, and we look forward to working with the national government to expand its reach to unlisted companies in the near future.

“Ultimately all countries, including Australia, should be moving towards implementing a robust and investable mandatory climate risk disclosure regime to manage the systemic risks created by climate change,” Jackson added.

In 2019, New Zealand became one of the first countries in the world to formally legislate a goal to reach zero net carbon dioxide emissions by 2050 and for the creation of an independent Climate Change Commission to provide advice to the Ardern government.

Shaw said that the advice of the commission had guided the decision to introduce the new disclosure laws.

“One way of reading the Climate Change Commission’s draft advice is as a warning that high-carbon investments will be increasingly risky as we get closer to meeting the Government’s climate targets,” Shaw said.

“We simply cannot get to net-zero carbon emissions by 2050 unless the financial sector knows what impact their investments are having on the climate. This law will bring climate risks and resilience into the heart of financial and business decision making.”