The New Zealand bill would require banks to disclose climate risks, in a world first

by

The government said in a statement Tuesday that the bill is the first of its kind to be proposed anywhere in the world. It will receive its first reading in parliament this week, and it would make climate-related disclosure mandatory for about 200 organizations.

“We simply cannot reach net zero carbon emissions by 2050 unless the financial sector knows the impact their investments have on the climate,” Climate Change Secretary James Shaw said in a statement. “This law will put climate risk and resilience at the heart of financial and business decision-making.”

The legislation requires financial companies to disclose how climate change is affecting their business and explain how they will manage climate-related risks and opportunities. If the bill passes, the first disclosure reports by companies would be published as early as 2023.

“By requiring the financial sector to disclose the impacts of climate change, companies can identify the high-emission activities that pose a risk to their future prosperity,” said Shaw, “as well as the opportunities offered by climate change and new low-carbon measures. activities. technologies. “

The New Zealand government has taken a number of steps in recent months to reduce the country’s emissions, including a commitment to make the public sector climate neutral by 2025 and require government agencies to purchase electric vehicles.

The latest move comes amid a growing focus from governments and financial regulators on the climate exposures of banks and asset managers, forcing these companies to rethink the projects they finance.

Several major US banks, including JPMorgan Chase JPM Goldman Sachs GS and bank of America BAC, have recently rolled out plans to align their financing activities with the Paris climate agreement, requiring them to cut loans and investments to fossil fuel industries such as coal and oil.

According to sustainable nonprofit Ceres, more than half of syndicated loans from major U.S. banks are in sectors of the economy that leave them vulnerable to the risks of climate change. Syndicated loans are funded by a group of banks.

Regulators have warned that climate change could expose banks to severe losses and endanger the stability of the financial system. Private savings managed by pension funds can also be at risk if invested heavily in assets that will not maintain their value in a low-carbon world.

The European Central Bank said in November that it will start assessing how bank balance sheets account for climate risks from next year.

For example, banks are expected to disclose how floods and storms can affect the value of their real estate portfolios and client supply chains, and to account for losses that could arise if companies adjust their operations to be less carbon intensive.

In its November financial stability report, the U.S. Federal Reserve first addressed directly the impacts of climate change on banks, saying that better disclosure could improve the pricing of climate risk and the kind of abrupt changes in asset prices that cause the financial system. could occur. shocks.

Source