Reserve Bank supports Sustainable Finance Forum’s interim report release
“We commend the release of the Aotearoa Circle’s Sustainable Finance Forum interim report. We believe that climate change could lead to material economic and financial stability impacts and as a kaitiaki of the financial system, we at the Reserve Bank of New Zealand - Te Pūtea Matua have a strong interest in the effect that this will have on economic wellbeing of New Zealanders for generations to come,” says Reserve Bank Governor Adrian Orr.
“This is why we have linked up with our international counterparts via the Network for Greening the Financial System (NGFS) and the Sustainable Insurance Forum to strengthen the global response required to meet the goals of the Paris agreement. Through this network, we are working with more than 45 other central banks and supervisors from countries responsible for half of the world’s greenhouse gas emissions to enhance our role in the greening of the financial system, and the managing of environment and climate related risks.
“We launched our Climate Change Strategy last December, highlighting how we can address climate change through our core responsibilities including oversight of financial stability and prudential regulation of banks and insurance companies. Currently 60 percent of surveyed banks and around a third of surveyed insurers already disclose some information on climate risk. While this is great progress, we support further efforts towards a credible and workable climate reporting framework.
“We affirmed our Climate Change Strategy last month through the purchase US$100 million of green bonds via the Bank for International Settlements’ USD Green Bond Investment Pool - launched in response to the growing demand for climate-friendly investments among central banks.
“There is still a lot more work to be done, but we will be responding to the Sustainable Finance Forum’s call for leadership as we work alongside others in the finance sector towards a sustainable, productive and inclusive low carbon economy.”
Op-ed from Reserve Bank of New Zealand Assistant Governor - GM Governance, Strategy & Corporate Relations Simone Robbers ‘Reserve Bank works to facilitate transition to low carbon economy’
As caretakers, or kaitiaki, of the financial system, we at the Reserve Bank of New Zealand - Te Pūtea Matua - have a strong interest in, and influence on, the long-term economic wellbeing of New Zealanders.
Sometimes, we are asked why we are placing such an emphasis on climate change, and that’s easy for us to answer. In our assessment, climate change could lead to material economic and financial stability impacts. Managing major risks to the economy, such as climate change, sits squarely within our core responsibilities and like all of our functions, we do this with a long term view for generations to come.
Globally, there is growing recognition of the role central banks and regulators have in understanding, managing and quantifying climate-related risks. By being more visible in this space we hope to encourage the financial sector to focus on not only managing risks, but opportunities, such as responsible, sustainable investment with long-term benefits.
Too often, economic growth is viewed as something that comes at the expense of a sustainable environment, and that can’t continue. Climate change is now well accepted as having a significant impact on economies worldwide. The impacts are physical through nature and financial through the changes we are seeing already in consumer and investor preferences and in regulatory responses.
Our overarching purpose is to promote the prosperity and wellbeing of New Zealanders so that we have a sustainable and productive economy. To help us achieve that, last December we launched our Climate Change Strategy.
This will help us to use the levers we have to facilitate a smooth transition to a low carbon economy in a way that does not diminish or adversely impact on the financial system’s soundness and efficiency. These include, managing our own direct impact on the climate, reflecting climate risks within our core functions, and contributing to wider efforts to identify, monitor and manage climate risks domestically – and as part of the global regulatory community.
To start with, we are getting our own house in order by better understanding and measuring our own carbon footprint, and then reporting on this annually. A preliminary screen earlier this year showed that the most significant sources of our greenhouse gas emissions are the production and transportation of currency and business travel. Knowing this helps us consider how we can reduce and offset these emissions.
We are also looking at how we can transition our investments to more sustainable alternatives. Last month, we affirmed this strategy through the purchase of US$100 million of green bonds via the Bank for International Settlements’ USD Green Bond Investment Pool, which was launched in response to the growing demand for climate-friendly investments among central banks. We now consider climate risks as part of our fundamental role of assessing risks to the financial system as a whole, and ensuring that these are communicated to the markets generally.
In our two most recent Financial Stability Reports we explored the risks that climate change is currently posing to New Zealand’s financial system, which is primarily exposed through the sectors that it lends to and insures. The physical risks of rising sea levels, storms, droughts, heavy rainfall events, and so on, can pose serious threats to us all and pose challenges for the banks and insurers who support economic activity. As our regulated firms respond, some risks may ultimately end up with other parties, such as central and local government.
An initial survey of the New Zealand financial sector showed that the industry is aware of these risks. All banks and 90 percent of non-life insurers consider climate change a risk to their businesses, which means we need to look at solutions that make a difference.
One solution is greater disclosure of institutions’ exposure to, and management of, climate change risks, but this is best done in a coordinated and consistent way so that markets, investors and regulators can make informed decisions. Currently, 60 percent of surveyed banks and around a third of surveyed insurers already disclose some information on climate risk. While this is great progress, we support further efforts towards a credible and workable climate reporting framework.
And, because we can’t solve the problem of climate change alone, we are connecting globally with our international counterparts via the Network for Greening the Financial System (NGFS) and the Sustainable Insurance Forum.
NGFS was set up in December 2017 at the Paris ‘One Planet Summit’ to strengthen the global response required to meet the goals of the Paris agreement, and brings together around 42 central banks from countries responsible for half of the world’s greenhouse gas emissions. The network has called for collective action and issued six recommendations for central banks, supervisors, policy makers, and financial institutions to enhance their role in the greening of the financial system, and the managing of environment and climate related risks. These include integrating climate-related risks into financial stability monitoring and micro-supervision work; integrating sustainability factors into portfolio management; bridging data gaps; and building awareness and intellectual capacity. We are taking work forward in all these areas.
We are also seeking to work more collaboratively within our own region. Earlier this year, the nine Pacific central banks agreed that a focus on climate change would be one of their priorities. They have invited the NGFS to an event in November that will look at the impact of climate change on the Pacific’s financial systems and the region’s response to it. The network’s members are committed to understanding and managing the financial risks and opportunities associated with climate change, with one of the key areas of focus being the scaling up of green finance.
It's easy to forget that with risk comes opportunity. Climate change can feel overwhelming at times and leave people confused about what they should or shouldn’t do to help the situation, but that does not mean inaction, quite the opposite.
As financial system participants we all need to actively look for opportunities to ‘finance the green’ and help New Zealand firms as well as our own organisations transition to lower emissions practices, and ensure we are well placed for a net zero world. It’s heartening to see that there are many businesses who are already well advanced on this journey. We now have a ‘road map’ from the work of the Sustainable Finance forum to help us all navigate and focus our collective efforts and we look forward to playing our role.