The Reserve Bank (RBNZ) has released finalised guidance outlining how financial institutions should evaluate and address climate-related risks like flooding and rising sea levels which have significantly impacted New Zealand in recent years.
Last year, the central bank released draft guidance for banks, insurers, and market operators on addressing climate risks.
RBNZ Director of Prudential Policy Kate Le Quesne said on Tuesday the central bank has a role to play in making sure entities manage climate-related risks as climate change poses risks to the stability of the financial system.
“The Guidance sets out our expectations of how regulated entities should be identifying, managing, and monitoring climate related risks. The Guidance is not prescriptive, as entities are best placed to decide how to apply it to their business models and strategies,” she said in a statement.
The RBNZ uses the example of insurers encountering unusually high claims due to increasingly frequent and severe adverse weather events. Or banks potentially experiencing escalating losses on loans to businesses whose viability is compromised as the climate changes.
Le Quesne said following consultation last year, the Guidance has been updated to include “more examples, reduce overlaps with other guidance and draw more links to existing parts of the prudential regime”.
The regulator sought feedback and consulted on the draft guidance between 29 March 2023 to 7 June 2023, receiving 16 submissions in the process.
In the consultation paper, the RBNZ asked for feedback on six questions:
1. Do you think that the Guidance sufficiently promotes common understanding of good practice in managing climate-related risks?
2. Is there anything in the Guidance that you would remove, add, or amend? Please provide specific reasons and details as far as possible.
3. Do you agree that issuing guidance is better than either of the alternative Options 1 and 2?
4. Do you foresee any conflicts between complying with the CRD regime and using our proposed Guidance on managing climate-related risks? Please provide specific details as far as possible.
5. What new compliance costs (if any) do you expect your organisation to face as a result of the Reserve Bank issuing the Guidance? Please provide estimated dollar amounts as far as possible.
6. What areas of the Guidance (if any) do you view as imposing regulatory burdens on your entity that are not justified by expected benefits?
Submitters included the Insurance Council, KPMG, AIA New Zealand, BNZ, the Commerce Commission, Financial Services NZ, Financial Services Federation, FinCap, Morgan Stanley Capital International (MSCI), Mitsubishi UFJ Financial Group (MUFG), NZ Banking Association, the NZX, Centre for Sustainable Finance and External Reporting Board.
There were also two additional submissions from members of the public who criticised the RBNZ’s decision to focus on climate-change with the consultation.
Some of the feedback included respondents stating that the draft guidance provided minimal additional value for climate reporting entities (CRE’s) already taking the requisite steps to comply with New Zealand Climate Standards (NZ CS).
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 introduced a mandatory climate-related disclosure framework for New Zealand which applies to CRE’s.
This has meant CRE’s must include climate-related disclosures in their annual reports for accounting periods starting on or after January 1, 2023.
“In order to best serve this purpose and provide the most value for all entities, we have therefore changed the structure of the Guidance so that the sections match those of NZ CS 1; governance, strategy, risk management and metrics and targets,” the RBNZ wrote in its submission response document.
There was also a preference across the submissions for guidance over other options provided in the draft consultation which were; maintaining the status quo or imposing requirements. The RBNZ has decided to proceed with issuing guidance.
The RBNZ has also further clarified in the latest guidance that New Zealand Climate Standards takes precedence over the central bank’s guidance for CRE’s.
The finalised guidance was released on the RBNZ website on Tuesday alongside the draft guidance submissions and the RBNZ’s responses to them.
5 Comments
Here is the Reserve Bank wanting entities to manage risks whilst actively working to increase risks by encouraging long term growth of GDP.
All consumption, investment, government spending, exports and imports require the burning of vast amounts of fossil fuel, consumption of natural resources and dumping of wastes.
The unfortunate reality is the Reserve Bank (and all other central banks) should immediately push interest rates up to 25% and bring economic activity to a halt if they wanted to mitigate climate risks.
The benefits of local knowledge. Unfortunately, we have one of the most centralised economies in the OECD.
How Bad Are Weather Disasters for Banks?
Kristian S. Blickle, Sarah N. Hamerling, and Donald P. Morgan
Federal Reserve Bank of New York Staff Reports, no. 990 November 2021
Abstract
Not very. We find that weather disasters over the last quarter century had insignificant or small effects on U.S. banks’ performance. This stability seems endogenous rather than a mere reflection of federal aid. Disasters increase loan demand, which offsets losses and actually boosts profits at larger banks. Local banks tend to avoid mortgage lending where floods are more common than official flood maps would predict, suggesting that local knowledge may also mitigate disaster impacts.
Being "green" sounds good. However when being green transpires to have nothing to do with conservation or the environment but represents a mechanism of control by hamstringing choices, we have a problem and not a benefit.
The "green" control mechanism is making all nature of industry less effecient and in some cases, no longer viable. It is a mechanism no one is allowed to debate unless one wishes to be labeled a heretic and may well also affect one's employability.
Now that the banks are subscribing to the "green" illusion, we have a complete coup d'etat of the freedom we once had.
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