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World first: NZ financial sector to report on climate risks

In what is a huge move for New Zealand, banks, asset managers and insurance companies will have to disclose their climate-related risks.

The policy requires disclosure from large companies and financial institutions with more than NZ$1 billion in assets and is set to be introduced by 2023.

Announcing the move last month, climate change minister James Shaw said some companies lacked 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,” James Shaw said.

Ensuring climate is a key consideration for the big financial players will help shape action, and ensure companies and their boards are doing their bit. The legal minds at Chapman Tripp have written about a director's duty of care and say they should be actively engaging in developing a long-term climate change response.

Writing in The Conversation, Ivan Diaz-Rainey, Director of the Climate and Energy Finance Group and Associate Professor of Finance at the University of Otago, said including banks and insurance companies in the new rules meant the whole of the economy would be seen through a climate risk lens.

“Banks will need to think seriously about transition, physical and liability risk when lending and offering insurance to households and small and medium size enterprises (SMEs). This matters most to domestic real estate, by far the largest item on the balance sheet of New Zealand banks, and agricultural and small businesses more generally.

"It would be unreasonable to ask SMEs and households to disclose climate risks, so the task is being delegated to banks and insurers.”

Importantly, mandating influential financial bodies to have climate as a key consideration will drive efforts to decarbonise our businesses, and assets across the board. With property a key asset base in Aotearoa, there will likely be pressure to ensure existing and new properties don’t have large carbon footprints and aren't vulnerable to sea level rise and more frequent or severe weather.

There will no doubt be opportunities for adaption, for adopting energy and water efficiency solutions and a low emissions transition. For a financial system that drives a climate friendly Aotearoa. Crucially this step will ensure we know who is doing their bit, and who isn't.