Real change on the cards with climate-risk reporting

Bell Gully's Simon Watt and Kate Redgewell say mandatory climate-risk reporting for the financial sector will be a relatively big shift for a number of organisations

29th Sep 20, 11:41am by Guest

By Simon Watt & Kate Redgewell*

Through Climate Change Minister James Shaw, the government has announced a policy to introduce mandatory climate-risk reporting for the financial sector in New Zealand from 2023.

Implementation would rely on support of the new government and would be enacted through amendments to the Financial Markets Conduct Act 2013.

In conjunction with New Zealand’s net zero carbon target and first tranche of emissions budgets arising from the recent amendments to the Climate Change Response Act 2002, which focus on the mitigation and adaptation journey for New Zealand as a whole, this policy (if implemented by a new government) would drive real change.

Climate-risk reporting and disclosure aims to promote more informed business, investment, credit and insurance underwriting decisions. The financial sector is broadly defined in the proposed policy to capture all registered banks, credit unions, building societies, managers of investment schemes, all equity and debt issuers listed on NZX as well as licensed insurers and Crown financial institutions, each with total assets of more than $1 billion.

This covers 90% of assets under management in New Zealand within the disclosure system.

Requiring this group of entities to consider and report on climate-related risks promotes better long-term, sustainable, strategic business and investment decisions to mitigate against climate risks and, importantly, take up climate opportunities. It also enables stakeholders to better understand carbon-related assets, where such assets are concentrated and the exposure of those assets to climate-related risks.

Expected to follow the TCFD Taskforce Climate Related Financial Disclosures Framework, the financial sector entities would be required to disclose on climate-related risks and opportunities associated with their organisation’s governance, strategy and risk management, and on the metrics and targets they are using to monitor and assess climate-related risks and opportunities.

While the framework is set up as a disclosure regime, as the TCFD Taskforce identified it is driving companies to understand the potential financial impact of climate-related risks and opportunities, and to consider longer-term strategies and the most efficient allocation of capital in light of the potential impacts of climate change.

In practice, this means these entities would be ensuring their governance, strategies and operations are structured so they not only know but can respond to climate-related risks and opportunities.

This will be a relatively big shift for a number of organisations and it will take several years and a fundamental, conscious shift to embed.

Many organisations have already started this journey, appreciating the longer-term value for the organisation (both financially and reputationally), their stakeholders and the communities in which they operate.

While New Zealand would be the first country to introduce mandatory climate-related risk reporting for the financial sector, a number of other countries and jurisdictions are also working towards some form of climate-risk reporting for companies. This includes Australia, Canada, the United Kingdom, France, Japan and the European Union.

*This article originally appeared in LawNews (ADLS) and is here with permission.. Simon Watt is a partner and Kate Redgewell a consultant at Bell Gully.

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23 Comments

by powerdownkiwi | 29th Sep 20, 12:13pm 1601334816

The insurance companies would have driven this anyway, by opting out.

But it does tell us that we don't have robust systems for accounting Natural Capital - resources, sink-capacities (which is the issue CC-wise) - we should be counting depletion and degradation.

It's the right move though, just a decade or two late. Tell the angry young to take it out on Federated Farmers. They'a Culpa.

by Believer1980 | 29th Sep 20, 12:39pm 1601336371

I think we have a general understanding of our Natrual Capital in their physical units. The problem is how you would make sense of them in terms of what you do with them: are you driving value from using them? value from who's perspective? humans (even then, which specific humans)?
We know now that we produce CO2 by doing certain things. It is so simple in my personal opinion: you either can do these things without producing CO2 (which we certainly do not given our existing technologies) or can stop doing these things and accept the consequence or keep doing it and accept the consequence. I simply do not see how disclosure and corporates reporting and accounting will be relevant given the nature of decisions involved. Even if your intention is to put a cost on CO2 emission and force it into that being taken into account in making financial decision, you can easily do that by increasing the input prices (e.g. fuel, electricity, food, etc).

That to me is all virtue signaling or corporates cleansing ritual to enable us on our current path without actually doing anything.

by Believer1980 | 29th Sep 20, 1:57pm 1601341024

Offcourse people like Kate and Simon should rejoice this new requirements. They will make a lot of money helping the regulated entities implement it.

But whether these disclosures are actually useful to any real player, is left to be seen. After all we all know that cars, airplanes and ships produce tonnes of CO2. We already know how much CO2 and other green house gases are produced by electricity generators. We already know the impact of farming and animal farming. It is not a secret. Yet we now need entities to participate in a ritual that they confess to their sins (assuming that they provide any real and objectively measured data), state a lot of nice intentions (like the corporate governance disclosures, as if anyone will come out state as their objective that they want to run a company very poorly), offer a lot of counter explanation for all the balancing actions they undertake and then they are absolved of their sins of producing tonnes of GHGs.

by powerdownkiwi | 29th Sep 20, 12:28pm 1601335737

Yes - I've been having that discussion at think-tank level. There are a crowd of virtue-signallers who would like BAU to continue with minor, green alterations. They are the ones urging the counting of CO2 - suitably long-term, suitably hard, suitably remote.

But we know to the litre, how much fossil energy we burn........ Easy to count, easy to tax, easy to ration.

But we have to realise that our economies are faltering now, with the current energy input. Lower it, tax it, ration it, and the kind of 'economy' with enough surplus energy to pay lawyers, is gone. I wonder if these folk get that?

by Believer1980 | 29th Sep 20, 12:43pm 1601336628

:) as my comment above shows, i agree with you.

by murray86 | 29th Sep 20, 2:05pm 1601341548

My biggest issue with this is that the Greenies and powers that be are arguing to put a price on carbon (although not the farmers despite them being one of the biggest producer through methane), but a price on carbon only directs the equity gap, putting the greatest load on those least able to afford it through things like taxes etc. I would rather see simple direct regulation aimed at reducing emissions. Climate change is real, and even though NZ only contributes to about 1% of it we still have to clean our act up. But there is a bigger issue underlying it all as PDK indicates - the continuing cry for growth in a finite system. I don't think we can address climate change effectively until we have a real debate about the demand for growth.

by profile | 30th Sep 20, 9:21am 1601410889

Methane production from NZ ag peaked in the 90's even as ag production increased. Soil carbon is ignored by the climate industry. When soil carbon taken into account pastoral grazing systems are net carbon sinks. If only you could virtue signal with soil carbon farmers would be on to a winner.
"- Adaptive multi-paddock grazing can sequester large amounts of soil C.
- Emissions from the grazing system were offset completely by soil C sequestration.
- Soil C sequestration from well-managed grazing may help to mitigate climate change."

https://www.sciencedirect.com/science/article/pii/S0308521X17310338?via…
https://pcep02s1.blob.core.windows.net/cache/5/a/1/3/6/8/5a136842a51fbc…

by Chairman Moa | 29th Sep 20, 12:43pm 1601336616

One of the two main insurance companies in Australasia now employed a team of meteorologist as part their risk assessment.

by Jack Lumber | 29th Sep 20, 1:19pm 1601338754

Its a financial risk - simple really. In the investments I have done in our company we now look at what the predictions are for the next 30 years in terms of climate and regulation along with standard stuff. We simply want to de risk as much as we can on the best information we have. Nothing ideological just risk management based upon the best science and information available. I know plenty of farmer friends doing this as well.

by waymad | 29th Sep 20, 1:44pm 1601340271

Consultant heaven. Yum.....

by Henry_Tull | 29th Sep 20, 1:49pm 1601340579

Finger lickin' good

Check out the zoom call to the end.

https://www.mcguinnessinstitute.org/reportingnz/a-near-horizon-seizing-…

by powerdownkiwi | 29th Sep 20, 2:25pm 1601342732

You're agriculture-based, HT?

I suggest you apply some thought, before denigrating others. The agriculture 'industry' has been pretty immature in it's avoidance actions, pretty selfish and pretty short-sighted.

And that's how the historians will write-up it's leadership and via them, its attitude. Much as we abhor the slave-owners of old, they will abhor you. You got offspring? Have they? Ever thought what they might think of you?

by redcows1 | 29th Sep 20, 3:08pm 1601345283

I would said they are acting very mature, as evidenced by their overly grey nature. I also would have said farmers or farming have acted exactly the same as everyone else and until we get all riotous about the need or growth they and everyone will continue to act that way.

by Henry_Tull | 29th Sep 20, 5:15pm 1601352946

Historians will more likely debate between it being a hysteria or hallucination.
But will all agree folk paid way too much.

by Roger Witherspoon | 29th Sep 20, 4:26pm 1601349962

But , but, but, what about Global Cooling? Without all those nice warming greenhouse gases we might get a replay of the Great Frost of 1709? All it takes is a couple of decent sized volcanic eruptions.... Panic, it could happen anytime!

by powerdownkiwi | 29th Sep 20, 4:42pm 1601350960

One we can't do anything about.

The other one is our fault, and we're causing mass extinction - probably including our own. You can be quite astute at times, RW ?

Just not this one?

by Roger Witherspoon | 29th Sep 20, 5:22pm 1601353325

There was an element of mischievousness that came over me. It's all so darned puritanical and dour. The end is nigh, repent ye sinners! Repent, I say.

I think I shall give up being serious and see if I can master the art of the frivolous comment.

by wee willy winkie | 29th Sep 20, 8:29pm 1601364579

Can anyone please point to some adverse climatic event directly attributable to climate change that has caused significant financial loss in NZ? East coast droughts need not apply, as they are commonplace. Presumably the new reporting standards will require that any positive impacts of CC will also be reported.

by powerdownkiwi | 30th Sep 20, 7:00am 1601402456

We are well past such equvocation, such self-justification.

Just accept that what you do/did, wasn't sustainable, in the real meaning of the word.

What I do find interesting, is that when those who strut confidently get faced with a predicament, they don't face up. The attempt to slew it sideways (RW, above) or fudge it as you have done (the Fred Singer approach; purposely conflating weather with climate).

Just 'fess up and get on with it. I apologised to my offspring a decade ago; told them I'd do what I could about it for the rest of my time.

by wee willy winkie | 30th Sep 20, 2:43pm 1601430224

So none of the Chicken Lickens can answer my question.

by profile | 30th Sep 20, 9:08am 1601410130

The climate industry rolls on. If only this cash was been spent on pandemic or earthquake preparedness or something useful.

"Interest in climate change is becoming an increasingly powerful economic driver, so much so that some see it as an industry in itself whose growth is driven in large part by policy making.

The $1.5 trillion global “climate change industry” grew at between 17 and 24 percent annually from 2005-2008, slowing to between 4 and 6 percent following the recession with the exception of 2011’s inexplicable 15 percent growth, according to Climate Change Business Journal."
https://www.insurancejournal.com/news/national/2015/07/30/377086.htm

by powerdownkiwi | 30th Sep 20, 2:48pm 1601430485

You'll be able to tell us, Profile. Inside knowledge and all that.

What size is the fossil fuel industry? And what is it subsidised to the tune of?

https://www.theatlantic.com/science/archive/2019/05/how-much-does-world…

"The International Monetary Fund recently updated its comprehensive report on global fossil-fuel subsidies. It arrives at a staggering conclusion: In 2017, the world subsidized fossil fuels by $5.2 trillion, equal to roughly 6.5 percent of global GDP. That’s up half a trillion dollars from 2015, when global subsidies stood at $4.7 trillion, according to the IMF. If governments had only accounted for these subsidies and priced fossil fuels at their “fully efficient levels” in 2015, then worldwide carbon emissions would have been 28 percent lower, and deaths due to toxic air pollution 46 percent lower".

Chuckle, You should have though before you opened the box.....

by profile | 30th Sep 20, 6:23pm 1601443414

Perhaps just read the report? Your level of analysis is as shallow as a puddle. The $5.2 trillion figure is not cash paid to oil companies as you imply. It is "damages" dreamed up by to suit the climate change narrative. I guess you are keen to take the LPG subsidy off the dirt poor so they can go back to burning charcoal? Ever seen charcoal being made in the 3rd world PDK? Or was it too far from the marina?
"These findings must be viewed with caution. Most important, there are many uncertainties and controversies involved in measuring environmental damages in different countries—our estimates are based on plausible—but debatable—assumptions."
"Most energy subsidies arise from the failure to adequately charge for the cost of domestic environmental damage—only about one-quarter of the total is from climate change"

https://www.imf.org/en/News/Articles/2015/09/28/04/53/sonew070215a