Implementation of the policy would rely on support of the new government and would be enacted through amendments to the Financial Markets Conduct Act 2013.
Climate-risk reporting and disclosure aims to promote more informed business, investment, credit and insurance underwriting decisions. The financial sector is broadly 'defined' in the proposed policy to capture all registered banks, credit unions, building societies, managers of investment schemes, all equity and debt issuers listed on NZX, as well as licensed insurers and Crown financial institutions each with total assets of more than NZ$1 billion – covering 90% of assets under management in New Zealand within the disclosure system.
In requiring this group of entities to consider and report on climate-related risks it not only promotes better long-term, sustainable, strategic business and investment decisions to mitigate against climate risks and importantly take up climate opportunities, but it also enables stakeholders to better understand carbon-related assets, where such assets are concentrated, and the exposure of those assets to climate-related risks.
Expected to follow the TCFD Taskforce Climate Related Financial Disclosures Framework the financial sector entities would be required to disclose on climate-related risks and opportunities associated with their organisation's governance, strategy and risk management, and on the metrics and targets they are using to monitor and assess climate-related risks and opportunities. While the framework is set up as a disclosure regime, as the TCFD Taskforce identified it really is driving companies to understand the potential financial impact of climate-related risks and opportunities, and to consider longer-term strategies and the most efficient allocation of capital in light of the potential impacts of climate change.
In practice this means these entities would be ensuring their governance, strategies and operations are structured such that they not only know, but can respond to climate-related risks and opportunities. One should recognise that this will be a relatively big shift for a number of organisations, and that it will take a number of years and a fundamental, conscious shift to embed. A number of organisations have already started this journey, appreciating the longer-term value for the organisation (both financially and reputationally), their stakeholders and the communities in which they operate.
In conjunction with New Zealand's net zero carbon target and first tranche of emissions budgets arising from the recent amendments to the Climate Change Response Act 2002, which focus on the mitigation and adaptation journey for New Zealand as a whole, this policy (if implemented by a new government) would drive real change.
While New Zealand would be the first country to introduce mandatory climate-related risk reporting for the financial sector, a number of other countries and jurisdictions are also working towards some form of climate-risk reporting for companies. This includes Australia, Canada, the United Kingdom, France, Japan and the European Union.
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This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.