Disclosure and supervision of climate-related risks

This page contains information on the disclosure and supervision of climate-related risks from the November 2020 Financial Stability Report

The May 2019 Report included the results of an industry survey of selected banks and insurers as part of a global survey on the implementation of disclosures developed by the Task Force on Climate-related Financial Disclosures (TCFD). The survey highlighted broad consensus among institutions that climate change will have an impact on the financial system but little evidence that concerns about climate change risks were influencing day-to-day business decisions.

The New Zealand Government recently approved the introduction of a mandatory climate-related financial disclosures regime. Disclosures would be made against a standard developed in line with the recommendations of the TCFD.

This regime would be on a comply-or-explain basis and apply to all publicly listed companies, as well as large insurers, banks and investment managers. This captures 90 percent of the assets under management in New Zealand. The broad approach to coverage would be a world first. If the proposal is approved by the incoming Parliament in 2021, organisations could be required to make disclosures in 2023 at the earliest.

The Reserve Bank places significant emphasis on disclosure and broadly supported the proposal to introduce the mandatory disclosure of climate-related risks, while noting challenges around the availability of data capacity and resources. Disclosure is an important tool to: facilitate the pricing of climate-related risks by market participants; help build organisations’ data collection, risk identification, and risk management practices; and ultimately encourage climate change-resilient investment.

The announcement comes as the Reserve Bank is stepping up its understanding and supervision of climate change-related risks for the banking and insurance industries. The supervisory approach will adjust to include climate-related risks in entity assessments, and for discussion of these risks to be included in regular supervisory engagements. One of the ways the Reserve Bank will assess the extent to which financial institutions are disclosing climate-related risks will be to repeat the survey on the implementation of disclosure developed by the TCFD. Options for climate change-related stress tests are also being explored.

The Reserve Bank has moved to incorporate climate change as a key priority in its activities, and is raising awareness of climate-related risks to financial stability through external engagement.10 This includes working with regulatory counterparts to increase coordination and build capability by leading New Zealand’s Council of Financial Regulators’ climate workstream.