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Sep 2022

New Zealand introduces climate change law for financial firms

Source: Asia Insurance Review | May 2021

New Zealand is the first country in the world to introduce a law that requires the financial sector to disclose the impacts of climate change on their business and explain how they will manage climate-related risks and opportunities.
 
The climate-related financial disclosures will be mandatory for some organisations and would apply to publicly listed companies and large insurers, banks and investment managers. If approved by the parliament, financial entities could be required to make these disclosures in 2023 at the earliest.
 
According to government sources majority of large New Zealand entities provide limited or no information on what climate change might mean to them or they report this information in inconsistent ways.
 
This information deficit is driving what a New Zealand government commission termed “an ongoing and systemic overvaluation of emissions-intensive activities”.
 
The goal of mandatory climate-related financial disclosures is to:
  • promote greater transparency and more accurate pricing signals in the market
  • incentivise low-emissions investment
  • create a level-playing field for businesses already considering climate change in their longer-term risks.
 
These would help New Zealand meet its international obligations and achieve its target of zero carbon by 2050. It would also help to address climate change risks outlined in the National Climate Change Risk Assessment by making country’s financial system more resilient.
 
Organisations that would have to make disclosures. There are around 200 entities in New Zealand that would be required to produce climate-related financial disclosures.
  • All registered banks, credit unions, and building societies with total assets of more than $1bn.
  • All managers of registered investment schemes with greater than $1bn in total assets under management.
  • All licensed insurers with greater than $1bn in total assets under management or annual premium income greater than $250m.
  • All equity and debt issuers listed on the NZX.
  • Crown financial institutions with greater than $1bn in total assets under management.
 
Entities would be required to make disclosures if they are over the thresholds on the last day of the two most recent financial years.
 
New Zealand climate change minister James Shaw said, “Requiring the financial sector to disclose the impacts of climate change will help businesses identify the high-emitting activities that pose a risk to their future prosperity, as well as the opportunities presented by action on climate change and new low carbon technologies.” A 
 
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