New Zealand is set to become the first country in the world to introduce a law that would subject financial firms to climate reporting. The law, which is expected to receive its first reading this week, will require banks, insurance firms and investment managers to make disclosures on the impacts of climate change on their business and how they plan to navigate climate-related risks.
In a world’s first, New Zealand will force its banks, insurers and investment managers with total assets of more than NZ$1 billion (~US$703 million) to report climate change impacts on their businesses. Debt and equity issuers listed on the New Zealand Exchange will also have to make disclosures.
The bill, which has been introduced to parliament and is expected to receive its first reading within days, will also subject firms to explain how they plan on managing climate-related financial risks and opportunities in the future. This will mean evaluating the effects of their own investments, as well as the impact of companies they are lending to.
“We simply cannot get to net-zero carbon emissions by 2050 unless the financial sector knows what impact their investments are having on the climate,” said New Zealand’s minister for climate change, James Shaw, on Tuesday (April 13).
“This law will bring climate risks and resilience into the heart of financial and business decision making.”
Under the NZ$1 billion threshold the law sets, around 200 of the country’s largest companies as well as several overseas firms will be subject to the new legislation. Once the law is passed, disclosures will have to be made in the year following in 2023.
We simply cannot get to net-zero carbon emissions by 2050 unless the financial sector knows what impact their investments are having on the climate.James Shaw, New Zealand Minister for Climate Change
The law was first proposed back in September 2020, when the government promised to enforce climate risk reporting on the financial sector.
“Becoming the first country in the world to introduce a law like this means we have an opportunity to show real leadership and pave the way for other countries to make climate-related disclosures mandatory,” said New Zealand’s commerce and consumer affairs minister David Clark.
Other policies that the government has implemented as part of its climate plan include pledges to make its entire public sector carbon neutral by 2025, and to purchase only net-zero emissions public transportation buses going forward. New Zealand has also committed to reaching carbon neutrality by 2050 in line with the Paris accord.
Becoming the first country in the world to introduce a law like this means we have an opportunity to show real leadership.David Clark, New Zealand Minister for Commerce & Consumer Affairs
There has been growing pressure on the banking and financial sector to ramp up their efforts to fight climate change and take accountability for their role in driving the crisis.
Investors have also begun shifting their strategies towards sustainable and ESG-forward approaches, especially in the wake of the pandemic and the promising data of its outperformance over traditional funds in 2020.
It has prompted some of the largest financial institutions to make their own individual climate pledges, with the likes of Goldman Sachs pledging to reach net-zero by 2030 and the world’s largest asset manager BlackRock joining the Climate Action 100+ pact and punishing high-emissions firms in its portfolio, shortly after coming under criticism for greenwashing.
Lead image courtesy of Public Domain.