The Reserve Bank will develop a guidance note on climate change risk management for banks, insurers and non-bank deposit takers, plans a climate change scenario-based bank stress test, and is working towards "fully embedding" climate risks into its core functions of financial stability and monetary policy.
These points are made in a climate change report released by the Reserve Bank on Tuesday.
“We recognise the need for more action than current, that is why we have laid out our commitments and future plans around climate change in this report,” Reserve Bank Governor Adrian Orr says.
Later in 2021 the Reserve Bank says it will start developing a guidance note on climate change risk management for the entities it regulates.
"The Guidance will support the Climate Related Disclosure plans and will cover governance, risk management, scenario analysis and disclosure. The guidance will not impose new requirements in relation to climate risks; rather it will support compliance with the [Reserve] Bank’s existing risk-management and governance requirements, and will provide guidance to assist entities to manage climate risks," the Reserve Bank says.
"Our approach will follow that of other appropriate regulators, for instance the Australian Prudential Regulation Authority and the Monetary Authority of Singapore, and will focus on physical, transition and liability risks. We believe that it will be crucial to work with our regulated entities to ensure that they are in positions to meet the new reporting expectations. We have heard from industry that key challenges include establishing appropriate scenarios, managing uncertainty, data availability, and capacity."
The Reserve Bank is the prudential regulator of banks, insurers and non-bank deposit takers including building societies, credit unions and finance companies.
The Reserve Bank says it's working closely with the External Reporting Board (XRB), an independent Crown entity tasked with preparing and issuing accounting standards and audit assurance standards. The XRB last week launched consultation on climate-related disclosures.
"The required disclosure will incentivise regulated entities to make progress on making robust long-term plans for responding to climate change and managing the emerging risks. We aim to support regulated entities by helping to develop a common understanding of what is needed and sharing best practice," the Reserve Bank says.
"While other agencies are in the lead on the design and implementation of disclosure obligations, the matters that the disclosure will cover fall mostly within our areas of concern as a supervisor."
'A full climate change scenario based industry stress test'
Meanwhile, the Reserve Bank says it's "learning ways" to further incorporate the risks of climate change into its bank stress testing, while improving capability.
"The plan is to build up gradually over the next 18 months to a full climate change scenario based industry stress test," the Reserve Bank says.
The Reserve Bank goes on to say that understanding climate change and climate risks is of critical importance to financial stability.
"Our foremost interest is the exposure of the financial institutions that we regulate to climate-related risks and their strategies to mitigate these risks."
"We are working towards fully embedding climate risks into our core functions of financial stability and monetary policy. In conducting these core activities, we must have regard to all relevant risks and operate according to appropriate time horizons," the Reserve Bank says.
"Climate change could have a large impact on our economy, so we must develop a strong understanding of the impacts it poses to our ability to conduct our monetary policy role effectively."
"We are currently assessing how our approach to monetary policy should account for the impacts of climate change. Climate change is a complex issue and we must make sure that we understand how it will affect the economy to effectively mitigate the attendant risks. Our approach to climate change is developing and we are continuing our research efforts," the Reserve Bank says.
The diagram below comes from the Reserve Bank report.
28 Comments
I was wondering the same thing! The good news is that our education system is full of climate change experts and it would be a shame not to create jobs for all of them.
I still see a lot of new development at sea level which is surprising given the amount of hype about sea level rise but to my mind, the biggest risks from climate change are regulatory risks, that put people out of business. Bad weather is well understood, expected and people already know how to deal with it. New regulations are much harder to anticipate, last forever and often require a total restructure of the business.
This seems like nonsense to me... Between fighting inflation and full employment... this approach to climate change issues/risks is just the RBNZ pulling itself.... (my view)
Central Banks are enablers of Materialism and consumerism.
In contrast..... Peter Warburton relates debt and unsustainability :
"The problem is that negative real interest rates incentivise reckless consumption rather than sustainable development. If we want a greener future, then ‘green’ bonds must bear a positive real rate of interest."
https://economicperspectives.co.uk/2021/10/debt-and-unsustainability/
I know what would be wild. If it could carry out its PTA obligations without crippling the future earning potential (and therefore posing an existential threat to its own existence) in the process!
Can't see it catching on, unfortunately. Not enough values workshops or shared morning teas in that racket.
I have an issue with this but let's not go there. An issue for the RBNZ is that net zero is going to be highly inflationary - so why don't they discuss how they respond to that? My sense is they will look through therefore quality of life for the average Kiwi is going to deteriorate as energy costs rise dramatically and filter to general goods inflation. No travel, limited protein, low wages.
They're no morons
They merely learned something which was moronic.
Garbage in, garbage out. There was one such, another thread yesterday, still away back at the Adam Smith interpretation (land). It's been the failure of a whole taught discipline; but whether it ever says 'we-a-culpa', I would doubt.
And why does the World Bank have a climate change website? It's one of the first to come up when you google climate change. The mouthpiece for the UN is the International Panel for Climate Change (IPCC). The carbon credits are channelled through the world financial banking system with much ticket clipping on the way through. Our NZ ETS (Emissions Trading Scheme) is a minefield with overseas buyers of sheep and beef properties converting to monoculture pine forestry with carbon rules still not decided. The amount of interest indicates a sure fire investment though.
One minute we are being told we have an environmental disaster looming from rampant spread of wilding pines. Now we are incentivising millions more plantings in hilly remote places where they can take over.
This government doesn't have a clue but will follow the doctrine blindly. Has any one heard how the one million trees project is going lately?
Gareth - you should be aware that climate is the effect our exhaust is having; no more, no less.
You should also know that that exhaust, comes from our energy burn.
It shouldn't take too much to ask the RBNZ: At what level of energy-use, can consumption be sustained?
'tis but a simple question......
Our approach will follow that of other appropriate regulators, for instance the Australian Prudential Regulation Authority and the Monetary Authority of Singapore, and will focus on physical, transition and liability risks.
Quantifying the unquantifiable to pacifying climate change terrorists.
They were trained in another era, with a set of obsolete ideas they hopefully call 'tools.
But there is an important point here; this is the beginning of finance people looking at physical implications. Hithertofore, a combination of ignorance and arrogance has rested on a couple of false assumptions; that an alternative will ALWAYS be found at some price-point, and that technology - not energy - will always advance us out of the hole.
This is the beginning of a serious re-write, but events will overtake the process. As it will the Wellbeing stage at Treasury.
The march of central banks around the world into other than banking issues is becoming quite noticeable. Seems to me they are moving towards increasing control of the economy aided and abetted by the politicians, the latest being climate change.
On the issue of climate change take a look at the B of A cost estimates to achieve zero emissions by 2050. It can only be achieved by full on MMT which few if any fiat currencies will survive.
No, it can't be achieved by full-on MMT.
That - with respect - falls into the same trap; lack of real underwrite.
https://www.mdpi.com/1996-1073/14/15/4508
Read it and weep. Then ask why it's not being reported?
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