The Minister for Climate Change of the New Zealand Ministry of the Environment announced that the Ministry has proposed new regulations requiring the financial sector to report on their climate risks. If the proposal is approved by Parliament, New Zealand will become the first country to adopt a mandatory climate-related financial disclosure regime.
The proposal comes as increasing numbers of companies, investors and countries (including New Zealand) are setting net-zero greenhouse gas emissions targets. There is also a growing push for entities to go further by setting more ambitious science-based emissions goals, defined by the non-profit Science-Based Targets Initiative as targets “in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement—to limit global warming to well-below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C.” (For further context, see the paper released in September by the Science-Based Targets Initiative outlining the foundations for developing a global corporate standard for setting science-based net-zero emissions targets).
Under New Zealand’s proposed policy, financial institutions with assets over NZ$1 billion would be required to make annual disclosures on the climate-related financial risk that they are exposed to through their investments. The requirements could come into force as early as 2023. According to the Ministry, the reporting requirements will cover approximately 90% of assets under management in the country by around 200 institutions including:
The Ministry states that “[t]he majority of large New Zealand entities provide limited or no information on what climate change might mean to them, or are reporting in inconsistent ways. This information deficit is driving what the Productivity Commission termed in their [2018] Low Emissions Economy report ‘an ongoing and systemic overvaluation of emissions-intensive activities.’” The proposed disclosure regime is intended to strengthen the country’s climate resilience in line with recommendations made in its 2019 National Climate Change Risk Assessment by bridging this information gap. Per the Ministry, it will also:
The proposed disclosure regime is based on the 2017 framework set out by the Task Force on Climate-related Financial Disclosures (TCFD), an initiative established by financial sector standard-setting organization, the Financial Stability Board, to “develop recommendations for voluntary climate-related financial disclosures that are consistent, comparable, reliable, clear, and efficient, and provide decision-useful information to lenders, insurers, and investors.” The TCFD framework outlines four categories in which companies should disclose their climate risk:
Source: TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017)
“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. 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.”
Hon. James Shaw, Minister of Climate Change, Government of New Zealand, Press release, New Zealand first in the world to require climate risk reporting (15 September 2020)
