New Zealand financial sector to disclose climate impact

New Zealand has become the first country to introduce a law which requires the financial sector to disclose the impact of climate change on businesses.

David Clark. (Photo by Elias Rodriguez/Getty Images)

New Zealand has become the first country to introduce a law which requires the financial sector to disclose the impact of climate change on businesses and how they will manage climate-related risks and opportunities.

The move contrasts with the voluntary approach in Australia, although listed companies must comply with the continuous disclosure regime.

The NZ legislation has been introduced to parliament and will receive its first reading this week.

Commerce and Consumer Affairs Minister David Clark said it was important that every part of NZ’s economy was helping to 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,” Dr 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.”

In 2019, the Australian Securities & Investments Commission updated its guidance on climate change-related disclosure, finding in general that its existing, principles-based approach was appropriate.

ASIC, however, highlighted that climate change was a systemic risk that could impact an entity’s financial prospects for future years and might need to be disclosed in a company’s operating and financial review.

The regulator also clarified that the risk of directors being found liable for a misleading or deceptive forward-looking statement in an operating and financial review was minimal.

This was provided that the statements were based on the best available evidence at the time, had a reasonable basis, and there was ongoing compliance with the continuous disclosure obligations.

NZ Climate Change Minister James Shaw said the law was another step towards a climate-friendly, prosperous future for NZ.

“Climate change will have a profound impact on businesses all over NZ,” Mr Shaw said.

“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.

“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.”

The legislation will make climate-related disclosures mandatory for around 200 organisations, including most listed issuers, large banks, licensed insurers and managers of investment schemes.

Once passed, disclosures will be required for financial years starting in 2022, meaning that the first disclosures will be made in 2023.

Mr Shaw said one way of reading the draft advice from the Climate Change Commission was that high-carbon investments would be increasingly risky as the government’s climate targets loomed.

“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,” he said.

“This law will bring climate risks and resilience into the heart of financial and business decision making.”

Reporting will be based on the Taskforce on Climate-related Financial Disclosures framework, which is acknowledged as international best practice.

Originally published as New Zealand financial sector to disclose climate impact