New Zealand to require climate risk reporting

NZ to become the first country to require the financial sector, including Australian bank subsidiaries, to report on climate risks.

ANZ is one of the big Australian banks that operates a subsidiary in New Zealand. Picture: Hollie Adams

New Zealand will become the first country in the world to require the financial sector to report on climate risks.

The reporting net extends to all banks, credit unions and building societies with total assets of more than $NZ1bn ($920m), which includes the NZ subsidiaries of Australia’s big four banks.

Also covered are all debt and equity issuers listed on the NZ Stock Exchange, as well as government financial institutions with more than $NZ1bn in assets under management.

They will each have to make annual disclosures covering governance arrangements, risk management and strategies for mitigating the impact of climate change.

The regime will be on a comply-or-explain basis, using the Task Force on Climate-related Financial Disclosures framework.

Announcing the move, the country’s Minister for Climate Change James Shaw said many large businesses did not have a good understanding of the impact of climate change on their operations.

“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,” Mr 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.”

The minister said other countries, including Australia, Canada, UK, France, Japan and the European Union were all working towards some kind of risk reporting for companies.

NZ, however, was moving ahead of them, making disclosure about climate risk mandatory across the financial system.

The Australian Prudential Regulation Authority has so far taken a different approach to reporting on climate risks.

APRA has told regulated entities that it expects them to report on climate risks under existing prudential rules.

The regulator has also backed the TCFD framework.

The $1bn disclosure threshold in NZ will cover about 90 per cent of the country’s assets under management, including the NZ Super Fund and the Accident Compensation Corporation.

In all, about 200 organisations will be required to disclose their exposure to climate risk.

The Responsible Investment Association Australasia welcomed the NZ government’s announcement, saying many Australian businesses with trans-Tasman operations would also be required to report on climate risk.

“This is overwhelmingly the direction global financial markets are heading in, and we encourage the Australian government to follow in New Zealand’s footsteps and demonstrate the same level of leadership,” chief executive Simon O’Connor said.

Once implemented, he said the framework would help NZ deliver on its commitment to the Paris Agreement, and help investors to price and value companies within the portfolios they managed.

“NZ’s future resilience and prosperity depends on being able to navigate climate change risk,” Mr O’Connor said.

“It is now the expectation that our finance and corporate sectors deliver positive social and environmental outcomes, and they need to be able to measure and report on these over time.”

Financial regulators and central banks, he said, had been clear in their view of climate change risks as distinctly financial in nature, warning of the significant financial and economic risks if more was not done to cut greenhouse gas emissions.

Mandatory disclosure of climate change risks by companies and investors would enable the economy to “better identify, avoid and navigate these risks.”