New Zealand bill would require banks to present climate risks in world premiere

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The government said in a statement on 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 will make climate disclosures mandatory for about 200 organizations.

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

The legislation would require financial firms to disclose how climate change affects their business and explain how they will manage climate risks and opportunities. If the bill is passed, the first disclosure reports will be published by companies immediately after 2023.

“Asking the financial sector to disclose the impact of climate change will help businesses identify high-emission activities that pose a risk to their future prosperity,” said Shaw, “as well as the opportunities offered by climate change actions and new low-emission activities.” carbon technologies. “

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

The latest action comes amid growing emphasis on governments and financial regulators on climate exposures of banks and asset managers, forcing these firms to rethink the projects they finance.

Several large US banks, including JPMorgan Chase (JPM), Goldman Sachs (GS) and Bank of America (ferry), have recently launched plans to align their financing activities with the Paris climate agreement, which will require them to reduce lending and investment to fossil fuel industries such as coal and oil.

According to the non-profit Ceres Sustainability, more than half of the syndicated loans of large US banks are in sectors of the economy that make them vulnerable to the risks of climate change. The syndicated loans are financed by a group of banks.

Regulators have warned that climate change could leave banks exposed to heavy losses and threaten the stability of the financial system. Retail savings managed by pension funds could also be at risk if they are heavily invested in assets that will not retain their value in a low-carbon world.

The European Central Bank said in November it would begin assessing how bank balance sheets account for climate risks starting next year.

For example, banks are expected to disclose how floods and storms could affect the value of their real estate portfolios and customer supply chains, as well as consider losses that could arise if businesses adjusted their operations to be more low carbon consumption.

In its November financial stability report, the US Federal Reserve directly addressed the implications of climate change for banks, saying better disclosure could improve climate risk prices and avoid sudden changes in asset prices that cause financial system shocks.

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