New Zealand has become the first country to consider legislation that would require the financial sector to disclose the impacts of climate change on their business and to explain how they will manage climate risks.
The nation has introduced the Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill to Parliament, which will receive its first reading this week.
The draft bill would make climate-related disclosures mandatory for around 200 organisations, including most listed issuers, large banks, licensed insurers and managers of investment schemes.
If the law is approved by Parliament, disclosures will be required for financial years commencing in 2022, meaning companies will be making their first set of reports in 2023.
Reporting would be based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.
The Minister of Commerce and Consumer Affairs; Digital Economy and Communications; State Owned Enterprises; and Statistics, David Clark commented the new law will ensure that financial organisations “ultimately take action” and set the tone for the rest of the world.
“Becoming the first country 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,” Mr Clark said.
“Many businesses face significant physical and transitional risks relating to climate change and while some businesses have started publishing reports about how climate change may affect their business, strategies and financial position, there is still a long way to go.”
The Climate Change Minister, James Shaw added high-carbon investments will be “increasingly risky” as the government aims to meet its climate targets.
“We simply cannot get to net-zero emissions by 2050 unless the financial sector knows what impact their investments are having on the climate. This law will bring climate risks and resilience into the heart of financial and business decision making,” Mr Shaw said.
New Zealand set a target of net zero by 2050 for carbon dioxide emissions when it passed legislation in late 2019.
Mr Shaw added climate change is set to profoundly impact businesses all over the country.
“There are activities and assets that these businesses are involved in that will not hold their value in a low carbon world, simply because they emit too much climate pollution and contribute to the climate crisis,” Mr Shaw added.
“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.”
New Zealand regulator Financial Markets Authority would be responsible for monitoring and enforcement of entities’ compliance with the climate disclosure standards.
The External Reporting Board, which is responsible for accounting and auditing standards in New Zealand, would be tasked with setting the climate standards. Under the law, it would also be able to issue guidance material on ESG reporting and other wider aspects of non-financial reporting.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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