Executive Summary
Climate change poses risks to the achievement of our economic, financial stability and central banking objectives under the Reserve Bank of New Zealand Act 2021. This requires us to take steps to understand, monitor and manage climate-related risks in a timely and efficient manner.
One of these steps is to voluntarily publish annual climate-related disclosures, setting out the work we are doing to address the climate-related risks we face. This is the second climate-related disclosure we have produced and covers the period until 30 June 2025. The disclosure is informed by the Network for Greening the Financial System disclosure guidance for central banks.
Governance
Our Board has several means through which it oversees climate-related matters, including formal reporting processes, ad-hoc Board papers and specialist training. Management oversight of our climate-related work is decentralised to departmental levels via embedded functions and existing committees.
Strategy
We structure our efforts to better understand how, when and to what extent climate change poses a risk to us around the 3 pillars of our climate strategy.
- Getting our house in order – monitoring and managing our own climate impacts, and the impacts of climate change on our operations and core central bank functions.
- Getting the settings in place – understanding how climate-related risks affect our ability to achieve our financial stability and economic objectives and, where consistent with our mandate, implementing any changes that will help us to achieve those objectives.
- Showing the way – through collaborating domestically and internationally.
Risk Management
We treat climate-related risks mainly as factors that increase the likelihood and impact of existing risks. In practice, they are identified through the Reserve Bank of New Zealand’s Risk Taxonomy and assessed and managed in line with our Risk Management Framework, using both operational (bottom-up) insights and strategic (top-down) oversight.
Metrics and Targets
We continue to publish our operational emissions footprint, as we have since 2019. This year we again disclose our progress against our emissions reduction targets and include a high-level summary of our emissions reduction plan for the Carbon Neutral Government Programme. We achieved our FY24/25 emissions reduction target.
More broadly, the Metrics and Targets section of our disclosure explains how we use data of various types to monitor and manage our climate-related risks. Wherever possible we refer to quantitative data to measure progress, but we also value qualitative data in helping us understand different aspects of climate-related work.
Governance
The links between climate change and our mandate
The purpose of the Reserve Bank of New Zealand Act 2021 (the Act) is to promote the prosperity and wellbeing of New Zealanders and contribute to a sustainable and productive economy.
Our Act sets us 3 main objectives.
- An economic objective of achieving and maintaining stability in the general level of prices over the medium term.
- A financial stability objective of protecting and promoting the stability of New Zealand’s financial system.
- A central bank objective of otherwise acting as New Zealand’s central bank in a way that furthers the purposes of the Act. An example is ensuring bank notes and coins in New Zealand meet the needs of the public.
Climate change poses risks to each of these objectives. We are therefore required to have governance structures and settings in place to allow us to understand, monitor and manage climate-related risks in a timely and efficient manner.
Board oversight of climate-related risks
The Act gives our Board overall responsibility for the Reserve Bank of New Zealand (Reserve Bank)’s strategic direction, functions and operations and ultimate accountability for the delivery of our outcomes. The Board’s role therefore includes oversight of climate-related risks related to our objectives and functions. Many of our Board members have experience of overseeing the management (and disclosure) of climate-related risks from their work with other organisations.
The Board has several ways by which it currently oversees climate-related matters. These include formal reporting processes, Board papers on climate-related matters and direct training and information sessions.
The Board meets on a near monthly basis and consists of 8 members: the Governor and 7 independently appointed individuals.
Management oversight of climate-related risks
Management oversight of our climate-related work is largely decentralised to departmental levels. We incorporate climate-related considerations into existing committees which consider climate-related matters on an ad-hoc basis and during planning and prioritisation exercises.
- The Financial Stability Committee (FSC) acts as a key forum and decision-maker as we integrate climate-related risks within our prudential regulation, supervision and financial system monitoring.
- The Monetary Policy Advisory Group (MPAG) receives and discusses climate chart packs and case studies every 6-12 months which inform its role of supporting and complementing the Monetary Policy Committee (MPC).
- The Assets and Liabilities Committee (ALCO) acts as a key forum and decision-maker as we consider climate-related risks within our balance sheet management and investment frameworks.
- The Payments and Currency Committee (PACC) acts as a key forum and advisory body as we progress our Future of Money and Payments work.
- The Enterprise Risk Management Committee (ERMC) provides management oversight and assurance to the Board and Executive Leadership Team that key risks, including climate-related risks, are effectively identified, assessed, and managed across the organisation through our Risk Management Framework.
Climate Change Working Group
At the end of FY24/25, we adopted a more integrated operating model with respect to climate-related risk. We moved away from the previous hub-and-spoke model due to organisational changes and towards further embedding climate responsibilities across Groups.
We maintained the established Climate Change Working Group (CCWG) as a key part of the operating model. The CCWG consists of approximately 20 members from across the Reserve Bank including Economics, Financial Markets, Prudential Policy and Supervision, among others. The fortnightly CCWG meetings enable staff to share information and provide feedback on climate-related materials and activities prepared by internal and external stakeholders.
Strategy
Our climate strategy
Climate change poses risks for central banks and supervisors to account for in achieving their mandated objectives, including for us here in New Zealand. Since 2018, we have structured our efforts to better understand how, when and to what extent climate change poses a risk to the Reserve Bank, as well as what we should do to manage the risks we identify, around the 3 pillars of our climate strategy:
- Getting our house in order – monitoring and managing our own climate impacts, including through our efforts to measure our emissions footprint and making a commitment to an emissions reduction target aligned with a 1.5˚C trajectory.
- Getting the settings in place – understanding and accounting for the impacts of climate change in how we carry out our core functions, where consistent with our mandate.
- Showing the way – leading through collaboration, including domestically (with our regulated entities, other Crown agencies, the research community and civil society groups) and internationally (with peer central banks and financial regulators).
During FY24/25, we began the process of reviewing and refreshing our climate strategy to factor in changing external and internal circumstances. That process remains ongoing, but we expect our future climate-related disclosures to reflect a revised and updated strategy.
Getting our house in order
Reducing our own emissions
Our climate strategy pillar "Getting our house in order" has led the way by increasing awareness across the Reserve Bank of what our major emissions sources are, how we can take steps to reduce them and what appropriate targets should be over time as we make our contribution toward achieving New Zealand’s net-zero ambition. We have made significant progress in reducing emissions against our FY19/20 base year.
The initiatives set out below in Figure 1 describe the activities we are undertaking as part of our emissions reduction plan.
Further information on our emissions, including how we are tracking against our targets, is available in the Metrics and Targets section and Appendices 1 and 2.
Getting the settings in place
Identifying and assessing climate-related risks
Under the "Getting the settings in place" pillar of our climate strategy, we have taken steps to provide climate information where it is needed as we undertake our core functions. This takes different forms for our objectives, with each risk identification and assessment requiring different data and information (see the Risk Management section). Our approach to identifying and assessing climate-related risks under each objective is set out below.
Economic objective
Our latest review of the Monetary Policy Remit (MPR) in FY22/23 identified that we expect climate change to affect the level and volatility of consumer prices in the short and medium term. Therefore, the MPC needs to understand how climate change will affect the economic objective.
To scan the horizon for climate-related risks, our Economics Department has prepared climate chart packs, case studies and analyses and presented them to the MPAG every 6 to 12 months. The chart packs contain information reflecting New Zealand’s current and near-term exposure to physical and transition risk from a range of sources, including via events and bottlenecks which may occur overseas as well as domestically.
We are also exploring options to improve our capability to model the economic effects of transition risk, allowing us to better understand which signals of change are relevant to price stability. This includes our acquisition of G-cubed, a hybrid dynamic stochastic general equilibrium (DSGE) and computable general equilibrium (CGE) model. G-cubed will enable us to assess how transition risks arising from domestic and international policies could have a bearing on inflation in in the New Zealand economy.
Separately, we are taking steps to better understand how climate-related risk affects our balance sheet. We continue to undertake research and educate ourselves through a series of internal papers. This includes exploring the methods and metrics available to represent different components of physical and transition risk in our sovereign bond portfolio (see Metrics and Targets section for more information).
Financial stability objective
As described in our FY23/24 climate-related disclosure, we have conducted climate-related risk identification and assessment exercises across different parts of the financial system since 2021. These include via banks’ agricultural lending, their residential mortgage lending in flood-prone areas and our inaugural climate stress test. Our climate stress test was acknowledged during FY24/25 on a global scale as we won the ‘Green Award’ in the annual Central Banking awards. In the reverse stress test exercise we conducted in 2024, several banks progressed the industry’s learnings from previous exercises by choosing to further explore climate-related risks combined with more traditional macroeconomic risks.
Through our prudential supervision we seek to make sure regulated entities adhere to minimum requirements and adopt prudent practices so other entities and the public can have confidence in them. We have now embedded climate-related risks within our supervisory assessment framework, with outcomes driving subsequent engagement and information requests as appropriate. Information sources available to supervisors include the results of our climate stress testing, our 2023 survey on climate-related risk management and disclosure and, in many cases, the voluntary or mandatory disclosures published by entities we regulate.
Central bank objective
The resilience of the money and cash system is nationally significant. Severe weather events have caused damage to national infrastructure and impacted New Zealanders’ ability to access, use and deposit cash. We are working to improve the resilience of the cash system and cash distribution infrastructure in New Zealand, recognising the increasing frequency and severity of weather events from climate change.
Internal operations
Our internal operations support core functions and the work we do to achieve our objectives. We have begun to incorporate climate-related risk identification and analysis within our internal operations in several ways.
- We have incorporated climate-related risk into our Risk Management Handbook.
- Our Digital Solutions risk framework captures many aspects of climate-related risk (for example in architecture and design, vendor selection and resource planning).
- Our Digital Solutions team identifies and analyses factors which could undermine the resilience of our digital infrastructure in the face of hazards, many of which have a climate-related component such as extreme weather events and power transmission disruption.
- Digital Solutions also monitors the carbon footprint of our IT operations, allowing our digital transition risk factors to be identified and analysed in detail.
- We now incorporate a “broader outcomes” component of our procurement processes, allowing us to identify climate-related risks in our potential supply chain partners.
- Our property team considers climate resilience and energy efficiency among other key factors when identifying future office locations.
Differences in timeframes and why they matter
Timeframes relevant to the analysis of climate-related risk can often be challenging to account for – some risks may happen over multiple decades while others may be an immediate concern.
Our objectives help us to define how we account for the timeframes of climate-related and non-climate-related risks. The “Getting the settings in place” pillar of our strategy helps guide us toward the effective integration of climate and non-climate matters across the Reserve Bank.
Economic objective
The analyses underpinning our monetary policy decisions are typically focussed on the medium-term, in line with the time horizon set out in our economic objective. This does not exclude the possibility of accounting for climate-related risk – climate change can create, and has already created, short term supply shocks – but the relationships between climate and the drivers of inflation can manifest over multiple time horizons.
We continue to explore options in this regard with a view to incorporating additional data and tools as they become available. In the future this may include reference to the short-term climate scenarios the Network for Greening the Financial System (NGFS) has begun to develop. The NGFS is a global group of central banks and supervisors sharing best practice and contributing to the development of climate-related risk management in the financial sector, among other objectives.
However, changing the timeframe of our monetary policy considerations to better capture long-run risks to price stability is not something we view as helpful or appropriate, given the medium-term focus of our economic objective.
Financial stability objective
The timeframes over which climate change impacts and policy responses play out can be challenging for business as usual financial stability risk analyses to account for. For example, the stress tests we typically have our banks and insurers carry out involve modelling impacts over 3 to 5 years. To account for the different nature of climate-related risk (particularly for banks), our 2023 bank climate stress test extended the time horizon to 28 years – aligned to their longest-maturity loan exposures. This gave banks a sufficient timeframe to account for the evolution of physical and transition risks in their analysis of balance sheet impacts.
Central bank objective
Climate-related impacts are relevant to our money and cash work over both the short and long-term. In the short-term, severe weather events can disrupt community access to cash services. As the impacts of climate change become more severe, these types of disruption may become more frequent.
In the longer-term, policy development for our Future of Money (digital cash and cash system redesign) work programme will consider emissions from a system level. The community cash service trials will undertake research to understand the viability and costs of redistributing cash within communities. This may result in changes that reduce the emissions for the financial system, though the impact on our cash-related emissions remains uncertain.
We also consider our emissions footprint and resilience to climate-related disruption when making decisions regarding our own cash operations where security and integrity allow, for example currency logistics and production.
Internal operations
We are taking steps to incorporate multiple timescales in our risk identification and analysis processes across the operations which support our objectives. Procurement is an area which we are continuing to improve. Any future procurement processes involving long-lived assets such as physical premises will incorporate multi-decadal climate impact projections. In the shorter-term, our current procurement processes carry a minimum 5% weighting on “broader outcomes” for environmental, economic and cultural benefits, providing a mechanism to account for supply chain risks arising from their emissions.
Evaluating the resilience of our climate strategy using scenario analysis
Many of the Reserve Bank’s larger prudentially regulated entities meet the criteria of being climate-reporting entities (CREs) under New Zealand’s mandatory climate-related disclosure legislation. One of the disclosures CREs must make is a description of how they have employed scenario analysis to evaluate the resilience of their business models and strategies and, this year, we have decided to follow suit to the extent that we can.
We have done so for 2 reasons. The first is to use scenario analysis to identify climate-related risks and better understand the resilience of our own business model under different assumptions about future climate impacts and emissions reduction pathways. Given our role as a central bank, we interpret our business model to be our economic, financial stability and central bank objectives under the Act. The second reason is to understand what this requirement means for the entities we oversee, so we can use that insight in our supervisory work and future training.
Scenario analysis is a tool for systematically exploring the effects of a range of plausible future events under conditions of uncertainty. It aims to better equip decision makers to account for a range of circumstances their organisations might encounter in the future. During FY24/25, we employed scenario analysis to assess the resilience of our climate strategy in delivering our business model objectives under different physical and transition risk assumptions. We adopted the 6 process steps detailed in the External Reporting Board (XRB)’s 2023 Staff Guidance Entity Scenario Development in doing so. This is explained more in Figure 2 below.
Figure 2: The scenario analysis process we undertook in FY24/25
1. Engage stakeholders
The climate team engaged a group of expert stakeholders from across the core functions of the Reserve Bank.
2. Define the problem
The group workshopped a problem definition, settling on 'How could climate change affect the Reserve Bank's ability to achieve its main objectives? What should we do, and when?', and selected a 2050 time horizon.
3. Driving forces
The group then held a drivers workshop, ranking drivers identified for their impact and uncertainty. The most impactful and uncertain drivers were 'global trade' and 'property markets and insurance in New Zealand', which became our scenario axes.
4. Temperatures and pathways
We selected 3 temperature outcomes and emissions reduction pathways from among the IPCC SSP-RCP sets: SSP1-1.9, SSP2-4.5, and SSP3-7.0. These result in warming outcomes of 1.4°C, 2.7°C and 3.6°C respectively in 2081 to 2100 (relative to an 1850 to 1900 baseline).
5. Draft narratives
The climate team developed 3 narratives for the Climate Change Working Group (CCWG) to review and revise. The narrative aspects of the scenario process allowed a rich picture of each scenario quadrant to be developed, helping participants to interrogate the scenario's impacts on RBNZ's mandate objectives.
6. Assess resilience
We evaluated the resilience of our climate strategy through workshops with the CCWG to interrogate the implications of each scenario on our ability to achieve our core objectives. Findings of this process will feed into our strategy review and refresh process.
The 3 scenario narratives developed and used by the Reserve Bank are summarised below in Table 3. Each presents a plausible alternative future rather than a probabilistic prediction. These narratives do not represent a view of the ‘most likely’ outcome(s) of climate change, rather they have been developed and used to allow us to better understand and prepare for the uncertain future impacts of climate change.
Table 3: Summary of the 3 scenario narratives we used in our scenario analysis during FY24/25
Sustainability shift
Approximate warming at 2100 - 1.4°C
Key assumptions
The world shifts incrementally but efficiently toward a more sustainable energy and consumption pathway. Coordinated and collective action is taken to effect transition, achieving net-zero by 2050.
Climate policy settings
Ambitious climate policies begin to be introduced immediately. Carbon Dioxide Removal is used to accelerate decarbonisation.
Changing equity
Approximate warming at 2100 - 2.7°C
Key assumptions
The world follows a path in which social, economic, and technological trends do not shift markedly from historic patterns. Global action to transition to a low carbon economy is therefore too late and is insufficient to avert substantial climate change impacts from occurring.
Climate policy settings
Climate change ambition is delayed and globally divergent. Carbon Dioxide Removal is used in some regions.
Disparate world
Approximate warming at 2100 - 3.6°C
Key assumptions
The world is subject to high and worsening levels of climate-related impacts, as limited efforts are made to transition to a low carbon economy. Economic and political disorder undermines progress on many fronts globally, with worsening climate impacts contributing to a dire environmental, social and economic outlook.
Climate policy settings
Only climate policies that have already been implemented are preserved, Carbon Dioxide Removal use is limited.
Table 4: Identified climate-related risks of relevance to our objectives under the Act
| Transition risks | Objective under the Act | ||
|---|---|---|---|
| Financial Stability | Economic | Central bank | |
| Transition-related factors such as increasingly stringent carbon taxes, rising transport costs, and the increasing costs of agricultural inputs could trigger elevated credit risk for banks’ lending portfolios, increased inflation and elevated challenges to meet the public’s currency needs. | X | X | X |
| Limited availability of specialist internal capacity or capability to model, monitor, and analyse climate-related risks in support of our prudential oversight and regulation, economic forecasting and stewardship of money and payments. | X | X | X |
| The relatively low volume of low-emissions investment options available to our prudentially regulated entities could increase risks to financial stability via changing investor sentiment, growth in stranded assets and a disorderly, disruptive market revaluation. | X | ||
| The costs to the government of adaptation and mitigation could affect the long-term safety, liquidity and return of our sovereign bond portfolios. | X | ||
| Transitioning to a low carbon economy – and associated policy uncertainty – can shift supply and demand patterns in volatile and unpredictable ways. | X | X | X |
| Physical risks | Objective under the Act | ||
|---|---|---|---|
| Financial Stability | Economic | Central bank | |
| More frequent and severe weather events damage critical transport, energy and communications infrastructure, disrupting the public’s access to cash. | X | ||
| More frequent and severe weather events lead to increased payouts by insurers and, in turn, greater pressure on their solvency positions and prices. | X | X | |
| Acute and chronic impacts of climate change, combined with climate-induced insurance retreat, reduce property values and mortgage viability in certain areas and heighten systemic risk across banks’ lending portfolios. | X | ||
| Acute and chronic impacts of climate change increase costs and reduce productivity for New Zealand’s largest GDP contributing sectors, putting upward pressure on inflation and cost of living, and undermining their international competitiveness. | X |
X | |
| Supply-side shocks from physical risks could shift neutral rates and affect the long-term safety, liquidity and return of our sovereign bond portfolios. | X | ||
| Severe weather events interfere with Reserve Bank and entity properties and operationally critical infrastructure, risking payment system continuity and monetary policy portfolio functions. | X |
X |
|
Adapting work to deliver our core functions
To be a modern, fit-for-purpose central bank we need to adapt to the changing circumstances and challenges we face, while continuing to achieve the objectives set out for us under the Act. The ‘Getting the settings in place’ pillar of our strategy has guided our efforts in doing so.
Where relevant, we have adapted the delivery of our core functions to account for climate-related risks. This has primarily involved improving our ability to identify and analyse risks, with some steps taken to manage them. We outline how we manage our climate-related risks in more detail in the Risk management section.
We expect to continue adapting core functions to manage the risks to achieving our objectives. For instance, our 2023 climate stress test scenario explored the climate-related risk exposure of Residential Mortgage-Backed Securities (RMBS). Over time, information our entities gather through these types of exercises and their own disclosure processes may contribute to further collateral framework analyses as part of our ongoing risk management work.
Our internal capability building
We have enhanced the climate-related skillsets of our people through direct training, economic roundtable sessions, guest speakers and our Climate Āria series. The Āria series consists of literature reviews and summaries that provide background on topics related to climate and our balance sheet of sovereign bond holdings. Participants in these activities include our FSA climate team, along with those members of the Supervision, Stress Testing, Economics and Financial Markets teams whose roles involve a component of climate-related risk identification, analysis and/or management.
Actions and activities have been prioritised for those areas where climate-related risks pose greater risks to our objectives, as outlined earlier in Table 4. An example of this prioritisation is the programme of training available for supervisors to engage on climate-related risk with our prudentially regulated entities (Table 5).
Table 5: The climate-related risk training syllabus available to our prudential supervisors
| Module | Content |
|---|---|
| An introduction to climate-related risks |
- Climate change and its impacts on New Zealand
- Introduction to climate-related risk – physical risk and transition risk - Climate-related activities at the Reserve Bank |
| Sector deep dives for: a) deposit takers, and b) insurers |
- Breakdown of how physical and transition risks compound individual business risks
- Actions entities should take to identify and manage climate-related risks |
| Tools for supervising climate-related risks | - Climate change within the supervisory assessment framework
- Stress testing - Risk management guidance - Disclosures - Engagements and supporting resources |
Challenges faced and lessons learned in adaptation of areas and functions
In the early stages of our climate strategy, the most significant challenges we faced related to capacity and capability. Through education, systematic risk identification and external collaboration, we enhanced our understanding of climate-related risk and how it impacts our objectives and core functions.
While our organisation-wide climate capability continues to improve, capacity is constrained. Central banks have several important work programmes which cannot be deprioritised. During periods of fiscal contraction, as signalled by a recent restructure and reduction in our total resourcing, our ability to simultaneously focus on all possible workstreams is significantly reduced. In response to these challenges, we are finding new ways to integrate climate-related risk identification and management within our core activities rather than via a standalone function.
The quantity and quality of evidence available to us has increased in the 7 years since we launched our climate strategy, including supporting data. However, like many other organisations addressing climate-related risk, we continue to experience challenges with data access, quality and consistency. We have learned from peers and expert researchers about specific data sources to use. We have also prioritised the data we deem essential and what may prove valuable but are not currently critical to our decision-making.
Globally, political shifts have driven some to question the links between climate change and the mandates of central banks. Our climate-related activities are considered in relation to our core functions and objectives, using substantial evidence from both domestic and international sources to anchor our activities in the financial and price stability challenges climate-related risks raise.
Showing the way
Strategic collaborations on climate-related risk
Our “Showing the way” climate strategy pillar sets out how we aim to lead through collaboration both domestically and internationally.
Domestic
Alongside our colleagues at the Council of Financial Regulators (CoFR), the Reserve Bank plays a key part in the stewardship of New Zealand’s financial system. CoFR contributes to maximising New Zealand’s sustainable, economic wellbeing through effective and responsive regulation of the financial system in New Zealand.
As of 30 June 2025, CoFR had 5 priority themes. One of those is climate-related risks and we have chaired the CoFR Climate community since late 2024. Our collaborations with CoFR on climate-related matters have included:
- consultation and information sharing to understand, mitigate and adapt to climate-related risks, ensuring the financial sector is resilient to a changing climate
- discussions and reviews relating to the design and implementation of system-wide initiatives such as the Sustainable Finance Taxonomy
- joining and participating in the International Transition Plan Network
- capability building through guest lectures from domestic and international experts on climate-related risk in the financial sector.
We also participate in the Interagency Implementation Working Group, run by the Climate Change Interagency Executive Board secretariat (CCIEB), which coordinates government action on New Zealand’s Emissions Reduction Plan (ERP) and National Adaptation Plan (NAP). We have completed our action item in the first NAP and continue to provide updates on other related actions. We participated in a workshop facilitated by the Climate Change Commission that will inform the second national climate change risk assessment and the second National Adaptation Plan to follow. We also held several stakeholder feedback meetings with peers in central government and a range of our prudentially regulated entities to inform our ongoing climate strategy review and refresh during FY24/25.
We have continued our involvement with the Carbon Neutral Government Programme (CNGP). This includes reporting our emissions, reduction targets and reduction plan for the first time in December 2024. We are also actively involved in CNGP working groups and have had bilateral meetings with other government agencies on improving our practices relating to emissions measurement, management, reduction and forecasting.
Finally, we engaged external expertise to support the ongoing review and refresh of our climate strategy. This work included interviewing key internal stakeholders, analysing external context, support in developing and assessing strategic options and assisting with implementation planning. All activities were carried out in close collaboration with the climate team, CCWG and other key stakeholders.
International
Internationally, we have been actively involved in the NGFS since 2021. We continue to co-chair the NGFS workstream “Net Zero for Central Banks” and co-lead the Workstream’s subgroup on Disclosure. We also participate in other NGFS Workstreams and Taskforces where resourcing allows, including the “Supervision” workstream and the Taskforce on Adaptation, where we co-authored a Concept Note for COP29. Our NGFS involvement has driven bilateral engagements with other central banks and supervisors on emissions reduction, climate-related disclosure and our supervisory approach. We also participate in the Sustainable Insurance Forum to learn from and contribute towards international climate and sustainability developments affecting insurance.
In our region, we connect with the Bank of International Settlements Asia Pacific Climate Network and the Executives Meeting of East Asia Pacific Central Banks, which help us to better understand how peer central banks and supervisors in the region are approaching issues such as climate-related risk management. In addition to engaging with other central banks and supervisors via global and regional fora, we hold regular bilateral meetings with peers around the world to share recent developments and learn from the experiences of others.
Communicating externally to inform our stakeholders
Our Governor and senior leaders have been invited to speak on climate-related issues on several occasions. We also regularly publish bulletin articles, reports and monetary policy statements which communicate, among many other things, our work and findings on climate-related risks to our external stakeholders. Additional examples include:
Bulletin articles
Financial Stability Report articles
- Insurance availability and risk-based pricing (May 2024)
- Developments in the Agricultural Sector (November 2023)
- Financial stability implications of recent North Island weather events (May 2023)
Speeches
- No longer tomorrow’s problem: How the Reserve Bank is working with its stakeholders to respond to climate change (November 2023)
- Climate Changed – and why climate matters to the Reserve Bank (September 2022)
- Our Transformation as a Prudential Regulator (September 2022)
Monetary Policy Statements
- Monetary Policy Statement (November 2024) noted climate-related energy and food risks to inflation over the medium term.
- Monetary Policy Statement (May 2024) highlighted that reinsurance and dwelling, contents and vehicle insurance premiums increased in response to property damage from the Auckland Anniversary floods and Cyclone Gabrielle.
- Monetary Policy Statement (February 2024) stated that climate-related drought in Panama remained a risk for global shipping inflation.
- Monetary Policy Statement (February 2023) included a box with a deep dive on the economic impact of Cyclone Gabriele and Auckland Anniversary floods on the North Island.
Risk Management
How we treat climate-related risks
We treat climate-related risks mainly as factors that increase the likelihood and impact of existing risks. In practice, they are identified through the Reserve Bank’s Risk Taxonomy and assessed and managed in line with our Risk Management Framework, using both operational (bottom-up) insights and strategic (top-down) oversight.
Our Risk Management Guidelines operate across the Reserve Bank. Relevant management, including those with responsibility for climate, meet with our risk team regularly to provide insight into the nature and scale of risks facing us and the types of mitigants and controls being employed to manage those risks. These inputs are aggregated and communicated to Directors and Assistant Governors in Group-level risk reports. The Enterprise Risk team then use these reports and other insights gathered to inform Risk and Compliance Reporting to ERMC, as well as half-yearly reporting to the Board.
How we employ data in our risk management processes
While our risk identification processes primarily employ qualitative data, taking an aggregate view of the drivers of risk across several domains in accounting for impacts of climate-related risks, there are also aspects of our analysis which employ quantitative data (Table 6).
Table 6: Backward- and forward-looking data employed in our climate-related risk management processes
Examples of backward-looking data
- Domestic greenhouse gas emissions
- NZ ETS secondary market pricing
- Trading partners’ greenhouse gas emissions and emission pricing policies
- New Zealand Drought Index conditions
- Historical extreme weather event damages for New Zealand and key trading partners
- Wholesale electricity prices, natural gas prices and supply, hydro supply
- Historical relationship of GDP growth to the impacts of drought
- Our operational greenhouse gas emissions by source
- The availability and status of banks and ATMs following extreme weather events
- Reports from Transpower
Examples of forward-looking data
- El Nĩno Southern Oscillation forecast
- Climate Change Commission ETS price projections
- Projections of chronic physical impacts such as sea level rise
- Projections of carbon emissions pricing
- Projections of our operational emissions
- Projections of commercial and residential property prices
- Projections of Real GDP and annual growth rates
- Projections of unemployment rates
- Reports from National Emergency Management Authority
- Projections from the National Institute of Water and Atmospheric Research
- Forecasts from the MetService
How we manage climate-related risks
We have taken steps to manage risks we believe of significance to the achievement of our objectives. For the most part, our approach is “bottom up”, in that we respond to and manage risks that are identified by our management teams involved in the delivery of our core objectives. We also benefit from strong oversight and challenge from our Executive Leadership, Board and Monetary Policy Committee where appropriate.
Economic objective
We conduct systematic monitoring of the impacts of climate change on inflation and the economy. This includes developing a climate chart pack which is updated and presented to the MPAG on a periodic basis. Alongside this we conduct case studies investigating how the physical and transition risks to New Zealand’s electricity supply impact the economy.
We continue to expand our modelling capacity and capability. We engaged researchers on the topic of drought in New Zealand to better understand the relationship between climate impacts in the agricultural and the broader New Zealand economy. We also procured a “G-cubed” licence from the McKibbin Group. G-cubed is a combination dynamic stochastic general equilibrium (DSGE) and computable general equilibrium (CGE) model. It is designed to model how climate-related transition risks could impact the economy.
We are also exploring options for the incorporation of climate-related risk analysis into our balance sheet risk management, primarily in relation to our foreign reserve holdings.
Financial stability objective
We published guidance for our prudentially regulated entities on managing climate-related risks in March 2024. The guidance helps generate a shared understanding and promotes our view of what constitutes better practice. It also serves as a platform for our supervisory oversight of climate-related risk among New Zealand’s registered deposit-takers, licensed insurers and financial market infrastructures.
We are better integrating climate-related risk in our prudential supervision. Supervisors now assess an entity’s exposures to, and management of, climate-related risks to create a bottom-up, entity specific, climate-related risk identification and management process. That risk assessment drives subsequent communications and information requests, amongst other supervisory activities including regular supervisory conversations. We also undertake periodic surveys, including the survey on progress on embedding climate-related risk management and preparedness for climate-related risk disclosure in August 2023.
We are monitoring climate-related risk in the financial system. Our monitoring activities include our Financial Stability Report articles and programme of work to integrate climate-related risks into prudential regulated entities’ stress testing (featuring our 2023 Climate Stress Test). This programme aims to build capability both within banks and at the Reserve Bank. The programme also identifies data gaps and methodological requirements in advancing our collective understanding of climate-related risks to financial stability in New Zealand.
Central bank objective
We use data to both understand the emissions produced by the cash system and how we can best respond when a climate induced crisis event occurs to make sure we can meet the needs of the public. During crisis events we make cash-services data available to the National Emergency Management Agency as required.
Internal operations
The Digital Solutions team has put significant effort into ensuring the resilience of our digital infrastructure in the face of natural hazards and power transmission disruption. The team also monitors the carbon footprint of our IT operations, allowing transition risk factors relating to digital operations to be incrementally reduced over time.
The Procurement team has incorporated a “broader outcomes” component in our procurement processes, among which sustainable processes are a factor.
We have aligned our operational emissions reduction efforts with peers in central government and developed monitoring and reporting mechanisms to track our progress.
Metrics and Targets
Central banks continue to establish norms with respect to their reporting of climate-related metrics. For instance, Eurosystem central banks have adopted a common framework of greenhouse gas (GHG) metrics for their non-monetary policy portfolios and non-monetary policy-related balance sheet disclosures. These are the weighted average carbon intensity (WACI), total carbon emissions and the carbon footprint of the portfolios under analysis.
The Reserve Bank does not have corporate portfolios of the type that many other central banks typically disclose emissions metrics for. We disclosed this type of information about our sovereign bond portfolio for the first time in several years in our FY23/24 disclosure. The NGFS Sustainable and Responsible Investment group also published a technical document in 2024 supporting central banks in considering climate-related risks in sovereign investments. These are aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Partnership for Carbon Accounting Financials (PCAF).
This year we again disclose independent measurements of our sovereign bond portfolio emissions, aiming where possible to match the work undertaken by other central banks described above.
More broadly, this section of our disclosure explains how we use data of various types to monitor and manage our climate-related risks. Wherever possible, we refer to quantitative data to measure progress, but we also value the role that qualitative data can play in helping us to understand different aspects of climate-related work.
Below we set out our efforts to employ climate-related metrics and targets in support of achieving our objectives under the Act, including those relating to our operational emissions.
Sovereign bond portfolio
Our monetary policy and foreign reserves portfolios exist to support our monetary policy and financial stability objectives and mainly comprise sovereign debt. Our objectives mean we must prioritise the safety, liquidity and return characteristics of those portfolios. We continue the process of determining the interaction between emissions profiles and the safety, liquidity and return characteristics of our investments. Setting simple emissions reduction targets for these portfolios could present trade-offs with respect to other criteria – a challenge faced by all central banks around the world.
The total value of our sovereign bond holdings is set out in Figure 7a.
Figure 7a: The value of the Reserve Bank’s sovereign bond holdings (USD)
Figure 7a shows the value has reduced by over 63% in the last 4 years as we unwind the Large Scale Asset Purchase portfolio of New Zealand sovereign bonds purchased as part of the monetary policy response during the COVID-19 pandemic.
The composition of our sovereign bond portfolio is set out in Figure 7b.
Figure 7b: The composition of the Reserve Bank’s sovereign bond portfolio by country
Figure 7b shows the portfolio is significantly tilted towards New Zealand and, to a lesser extent, the USA, with small weights for several other developed economies. Having reduced the concentration of our New Zealand bonds by approximately 15% in 2024, the overall portfolio composition remained broadly similar in 2025.
We have taken steps to better understand the emissions related to our financial investments. In 2021 we first engaged a third-party specialist in the measurement of financed emissions to provide an independent estimate of the carbon intensity of our sovereign bond portfolio. In each of the last 2 years we again engaged a third-party specialist to provide a range of measures of emissions related to our sovereign bond holdings.
The first of these metrics, Production-based WACI, is provided in Figure 8 below. Production-based WACI accounts for the Scope 1 emissions produced domestically by a sovereign and includes domestic consumption and exports. PCAF recommends disclosure of production-based emissions as this calculation aligns with the territorial emissions approach nations use to annually account for their national inventories in reporting to the United Nations Framework Convention on Climate Change. This metric can include or exclude emissions resulting from land-use change and forestry.
Notably, Production-based WACI figures do not include emissions from fossil fuels such as coal and oil extracted for export to another jurisdiction. Where possible, we display WACI measures both including and excluding emissions resulting from land-use change and forestry. Where emissions measures have been apportioned for GDP, we have presented such measures in constant (2021) USD to eliminate the effects of inflation and exchange rates when calculating emissions intensity per unit of GDP.
Figure 8: Production-based WACI of the Reserve Bank’s sovereign bond portfolio, in tCO2e/mUSD PPP GDP (constant 2021 USD)
Figure 8 shows a gradually reducing Production-based WACI, both including and excluding emissions resulting from land-use change and forestry. This closely mimics the trend in production-based intensity of New Zealand reflecting the significant weighting to New Zealand in our sovereign bond holdings, albeit most other countries’ intensities also reduced over time.
Consumption-based WACI provides an emissions measure reflecting domestic demand within a sovereign jurisdiction on a per-capita basis (Figure 9). This metric provides a broader view of a country’s emissions and, by accounting for trade effects, captures the “carbon leakage” which might otherwise result from the production of goods in one jurisdiction and their consumption in another.
Figure 9: Consumption-based WACI of the Reserve Bank’s sovereign bond portfolio, in tCO2e/capita
Figure 9 shows gradually reducing Consumption-based WACI since 2022, both including and excluding emissions resulting from land-use change and forestry. This closely mimics the trend in consumption-based intensity of New Zealand reflecting the significant weighting to New Zealand in our sovereign bond holdings, albeit most other countries’ intensities also reduced over time. The 2021 low was driven by reduced consumption patterns associated with the COVID-19 pandemic.
The TCE metric provides a measure of the absolute emissions associated with our sovereign portfolio. TCE is arrived at by attributing a portion of each jurisdictions’ emissions to our investment as a proportion of the sovereign’s total output (i.e., GDP). As an absolute rather than intensity measure, the size of investments in our portfolio is the main driver of TCE. This makes comparison between sovereign portfolios difficult. However, the addition of an intensity metric such as Production-based WACI can help to indicate directional changes in the emissions attributable to the sovereigns we invest in (Figure 10).
Figure 10: Total Carbon Emissions apportioned to the Reserve Bank’s sovereign bond portfolio
Operational emissions summary
We continue to measure our operational emissions, with Figure 11 (below) setting out our annual operational emissions inventory since FY19/20.
This year we changed the methodology of calculating our Scope 2 emissions to better reflect the allocation within 2 The Terrace between the Reserve Bank and other tenants. We have restated Scope 2 emissions from prior years accordingly. See Appendices 1 and 2 for our full emissions inventory, including year-on-year and base year comparisons respectively.
Figure 11: Operational emissions inventory
Figure 11 shows our total operational emissions were 14% above our FY19/20 base year and 21% higher than FY23/24. The primary driver of the increase from last year was purchased goods and services emissions. Purchased goods and services emissions, which we estimate with the dollar spend methodology, made up 63% of our operational emissions during FY24/25 and have increased with our expanded responsibilities under the Act.
Other sources including electricity, employee commuting, employee work from home and business travel also increased. Business travel is an unavoidable cost of doing business for central banks. We are obliged to engage and collaborate with international peers and participate in multinational institutions. We are taking steps to monitor and manage our business travel emissions, as set out in the Strategy section. On a per-FTE basis, our business travel emissions in FY24/25 were 46% lower than our FY19/20 base year.
We achieved reductions in FY24/25 emissions relative to FY23/24 in currency production, combustible fuels, downstream leased assets and upstream fuel.
Operational emissions reduction targets
We have set our own emissions reduction targets using CNGP guidance. Our emissions reduction targets include emissions from mandatory emission sources under the guidance (other than working from home) and some “material” sources. We excluded 3 “material” sources from our targets, namely purchased goods and services emissions due to data limitations and currency production and balance sheet emissions due to the primacy of our mandate.
We selected FY19/20 as our base year and set out to reduce emissions from sources included within our targets by 21% in FY24/25 and 42% in FY29/30. Our performance against our targets to-date is set out in Figure 12 below.
Figure 12: Performance against our emissions reduction targets
Figure 12 shows we achieved our FY24/25 emissions reduction target, with our target emissions reduced by 30% against our FY19/20 base year. This achievement is primarily due to reduced currency freight emissions, though we have also reduced our Scope 1 and Scope 2 emissions over the five-year period. Currency freight emissions fluctuate for a range of reasons and options to reduce emissions are limited.
Operational emissions in FY29/30 need to be at least 18% below FY24/25 levels to achieve our target. Our ability to achieve that remains partly dependent on technological change, particularly for hard to abate emissions sources.
We have assorted action items in our emissions reduction plan that should help achieve further reductions, as set out in the Strategy section.
Appendix 1: Emissions inventory tables (Year-on-year)
| Source of GHG emissions | |
||||||
|---|---|---|---|---|---|---|---|
| GHG protocol | 2024/25 | 2023/24 | Increase / (Decrease) | ||||
| tC02e | % | tC02e | % | tC02e | % | ||
| Scope 1 Combustible fuels | |||||||
| Natural gas | 91.6 | 1.3% | 108.7 | 1.9% | (17) | -16% | |
| Other combustible fuel | - | 0.0% | 4.0 | 0.1% | (4) | 0% | |
| Refrigerant | - | 0.0% | - | 0.0% | - | ||
| Total Scope 1 | 91.6 | 1.3% | 112.7 | 1.9% | (21) | -19% | |
| - | - | ||||||
| Scope 2 Electricity | 162.2 | 2.3% | 108.0 | 1.9% | 54.2 | 50% | |
| - | - | ||||||
| Scope 3 Other Indirect emissions | |||||||
| Purchased goods and services | C1 | 4,406.7 | 63.2% | 3,320.2 | 57.4% | 1,087 | 33% |
| Currency production | C1 | 432.1 | 6.2% | 438.6 | 7.6% | (6) | -1% |
| Upstream fuel emissions | C3 | 64.8 | 0.9% | 64.4 | 1.1% | (0) | 1% |
| Upstream transportation | C4 | 274.4 | 3.9% | 271.3 | 4.7% | 3 | 1% |
| Waste disposal | C5 | 16.0 | 0.2% | 15.7 | 0.3% | 0 | 2% |
| Water supply | C5 | 0.2 | 0.0% | 0.1 | 0.0% | 0 | 52% |
| Wastewater treatment | C5 | 1.4 | 0.0% | 1.2 | 0.0% | 0 | 12% |
| Business travel | C6 | 1,077.9 | 15.5% | 998.5 | 17.3% | 79 | 8% |
| Employee commuting | C7 | 346.5 | 5.0% | 338.2 | 5.9% | 8 | 2% |
| Employee working from home | C7 | 21.7 | 0.3% | 15.3 | 0.3% | 6 | 42% |
| Downstream leased assets | C13 | 78.1 | 1.1% | 96.2 | 1.7% | (18) | -19% |
| Total Scope 3 | 6,719.7 | 96.4% | 5,559.5 | 96.2% | 1,160 | 21% | |
| Total Direct Emissions | 91.6 | 1.3% | 112.7 | 1.9% | (21) | -18.7% | |
| Total Indirect Emissions | 6,882.0 | 98.7% | 5,667.6 | 98.1% | 1,214 | 21.4% | |
| Total Emissions | 6,973.6 | 100.0% | 5,780.3 | 100.0% | 1,193 | 21% | |
Appendix 2: Emissions inventory tables (Base year comparison)
| Source of GHG emissions | Base year | ||||||
|---|---|---|---|---|---|---|---|
| GHG protocol | 2024/25 | 2019/20 | Increase / (Decrease) | ||||
| tC02e | % | tC02e | % | tC02e | % | ||
| Scope 1 Combustible fuels | |||||||
| Natural gas | 91.6 | 1.3% | 97.2 | 1.6% | (6) | -6% | |
| Other combustible fuel | - | 0.0% | 8.4 | 0.1% | (8) | -100% | |
| Refrigerant | - | 0.0% | - | 0.0% | - | 0% | |
| Total Scope 1 | 91.6 | 1.3% | 105.7 | 1.7% | (14) | -13% | |
| - | - | ||||||
| Scope 2 Electricity | 162.2 | 2.3% | 188.7 | 3.1% | (26) | -14% | |
| - | - | ||||||
| Scope 3 Other Indirect emissions | - | - | |||||
| Purchased goods and services | C1 | 4,406.7 | 63.2% | 2,081.2 | 34.0% | 2,326 | 112% |
| Currency production | C1 |
432.1 | 6.2% | 1022.9 | 16.7% | (591) | -58% |
| Upstream fuel emissions | C3 | 64.8 | 0.9% | 84.4 | 1.4% | (20) | -23% |
| Upstream transportation | C4 | 274.4 | 3.9% | 1,248.7 | 20.4% | (974) | -78% |
| Waste disposal | C5 |
16.0 | 0.2% | 14.9 | 0.2% | 1 | 8% |
| Water supply | C5 |
0.2 | 0.0% | - | 0.0% | 0 | 0% |
| Wastewater treatment | C5 | 1.4 | 0.0% | - | 0.0% | 1 | 0% |
| Business travel | C6 | 1,077.9 | 15.5% | 1,071.9 | 17.5% | 6 | 1% |
| Employee commuting | C7 |
346.5 | 5.0% | 166.7 | 2.7% | 180 | 108% |
| Employee working from home | C7 |
21.7 | 0.3% | 20.0 | 0.3% | 2 | 8% |
| Downstream leased assets | C13 | 78.1 | 1.1% | 117.0 | 1.9% | (39) | -33% |
| Total Scope 3 | 6,719.7 | 96.4% | 5,827.7 | 95.2% | 892 | 15% | |
| - | - | ||||||
| Total Direct Emissions | 91.6 | 1.3% | 105.7 | 1.7% | (14) | -13.4% | |
| Total Indirect Emissions | 6,882.0 | 98.7% | 6,016.3 | 98.3% | 866 | 14.4% | |
| Total Emissions | 6,973.6 | 100.0% | 6,122.0 | 100.0% | 852 | 14% | |