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Financial firms and major listed companies to be made to disclose their climate-related financial risks; Govt consults on exactly how this should be done

Financial firms and major listed companies to be made to disclose their climate-related financial risks; Govt consults on exactly how this should be done
James Shaw

The Government is proposing to require financial firms and major listed companies to include an assessment of their climate-related financial risks in their annual reports.

The Ministry of Business Innovation and Employment and the Ministry for the Environment are about to release a consultation document on a proposed regime based on one recommended by the international Task Force on Climate-related Financial Disclosures.

Australia, Canada, the UK, France, Japan, and the European Union are in the process of implementing similar frameworks.

The Minister for Climate Change James Shaw explained: “We are seeing increasing demand from the private sector for greater clarity and certainty regarding these types of disclosures. We know that some New Zealand businesses are already exploring these, as is the Reserve Bank.

“For example, if we have an airport built on a waterfront that is going to be affected by climate change induced sea-level rise, these risks need to be understood and disclosed, so that both the company and its investors have appropriate information for decision-making.

“Better provision of information will enable financial markets to effectively price in climate change risks and help to safeguard our financial stability. It will also help to identify opportunities, and incentivise further low-emissions and resilient investments.”

An explainer by

Insurers have really led the charge in New Zealand repricing climate risk.

They are using more granular data around floods and earthquakes to charge policyholders for the real risks they pose. This is seeing some premiums sky-rocket.

The consequence is that if it’s too expensive or impossible to insure an asset, it loses its value.

If a number of the assets a bank has lent against plummet in value, the bank is left exposed and its bottom line is hit. In the absolute worst case scenario, taxpayers could be called upon to support the bank.

So basically, greater risk-based pricing transfers the risk from an insurer to the asset owner (a household, business, local government, or central government), as well as the institution that lends to them.

In an attempt to reduce their exposure to climate-induced risk, banks are expected to become more selective about who they provide loans to.

If a bank decides it’s too risky to lend to a business that uses coal energy for example, because it fears higher emissions pricing and new environmental standards might make it unprofitable, the value of that business falls and its shareholders are hit.

It is from this perspective that there’s a push from the Government and Reserve Bank, among their counterparts around the world, for firms to disclose climate risk.

IE the coal-powered business to be more upfront about the financial risks it faces due to changing environmental standards. Or the bank to detail its exposure to high-emitting sectors or coastal property for example.

The consultation on exactly what these disclosures should look like closes on December 13.

Directors' and fund managers' duties under the law

In essence, climate risk is being acknowledged as a material risk to financial stability. The Reserve Bank’s focus on climate risk in its recent Financial Stability Reports is testament to this.

Furthermore, law firm, Chapman Tripp, released an opinion on Thursday clarifying the legal obligations of directors and fund managers when it comes to considering climate change in their decision-making.

It concluded that directors may take climate change into account in their decision making and must do so to the extent that climate change presents a foreseeable risk of financial harm to their companies.

Directors of certain companies with public disclosure requirements (eg listed companies) may also have a duty to ensure that material climate risks are disclosed to the public.  

For fund managers (including managers of KiwiSaver and superannuation schemes), the duty to act in the best interests of their investors now requires managers to take climate change risk into account when designing investment policies, where to do otherwise could pose a material financial risk to the investment portfolio. 

Fund managers may also need to implement a climate change investment strategy to future-proof their funds for their investors.

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Risk assessment is good.
Climate Change financial risk assessment.
Following from IPCC documents, once all risks identified and reviewed. And then assessed.

Here's a prediction.
The assessment will be low. Absolute terms
The assessment will be low. Relative terms

Why bother with all this political kerfuffle, we've only got 7 years left according to this "scientist".
This professor knows all about climate change etc., because he studied biology.

Humans 'don't have 10 years' left thanks to climate change - scientist


There's no point trying to fight climate change - we'll all be dead in the next decade and there's nothing we can do to stop it, a visiting scientist claims.

Guy McPherson, a biology professor at the University of Arizona, says the human destruction of our own habitat is leading towards the world's sixth mass extinction.

Instead of fighting, he says we should just embrace it and live life while we can.

"It's locked down, it's been locked in for a long time - we're in the midst of our sixth mass extinction," he told Paul Henry on Thursday.

This is just 1 guy at the fringe of the debate, and is not representative of the consensus between climate scientists, just as those scientists who deny climate change are also at the fringe...

"Analysis of the data by knowledgeable science educators such as Scott K. Johnson[7] and working scientists such as Michael Tobis[8] shows that McPherson wildly distorts climate science — especially developments about methane emissions from the Arctic — to support his conclusions. They also refute his claims related to runaway climate "feedbacks" as, variously, "not fast enough", not meeting the technical description of positive feedbacks, or actually constituting negative feedbacks. Additionally, Tobis points out that some of McPherson's statements — such as one nonsensical prediction of chain nuclear meltdowns — have literally nothing to do with climate science."

Classic, we have gone from the climate denialists position of, climate change does not exist, to its too late now let's not bother.

Asteroid impact risk next?

Closely followed by central and local government related financial risk assessment? Shaw himself is more of a financial related risk than a zero accountability 2100 model projection.

Sounds good - what gets measured, gets managed

Yep another bit of political posturing with no actual value and zero benefit to anyone other than politicians

You do not think as an investor such info isnt good to know? I mean if you believe in science then you wont invest in a company that is excessively exposed so exit your position. If you are a denialist well there is your opportunity to buy cheap off "greenies" and make a killing on the discounted share as they climb in value.

How about Mr Shaw does a road trip around the US, India and China to talk about their climate risk and its impact to countries like NZ that are merely a blip in the overall problem?

As a NZ politician why? other countries are doing their part if slowly, NZ needs to do its part as our per capita numbers are bad.

Super.. additional reporting that no one will read, will cost plenty to produce and will ultimately be paid for by customers.

The Greens would be better off suggesting these firms have to plant a tree for every staff member annually.... would be a hell of lot more productive than this rubbish.

Personally as an investor I'd like to know what the risk exposure is.

Another nail in the coffin for the overseas banks ?
Or an election gimmick ?

Humans have been predicting the imminent end of the world since a bearded man was hung on a cross 2000-odd years ago .

We will not all be dead in a decade , I will around three score and ten , enjoying life to the full

I am not aware that the claim is "we'll be dead in a decade" but in fact the actual wording is more like a decade from now we will have locked in such severe climate change for the future and hence severe impacts that its pretty likely that within 50 years or present global society will be gone and yes within 200 years we will be extinct as a species.

The comments on this article really show how short sighted and defensive some people are about 'CC' . I see it as a way to direct investment into cleaner technology. This is an opportunity for positive growth that will increase living standards in a sustainable way. We all hate sitting on the motorway in Auckland in the middle of summer, surrounded by stinking cars, would be much more comfortable if they were all electric.

Also, banks and insurance companies are already assessing the risks to your seaside properties. Wouldn't it be better for investors and stakeholders if these risks were transparent?

Yes. In fact even if you are a denier, why not love such assessments? I mean from the deniers perspective if "stupid" people exit "desirable" investments at a discount to invest in green investments what's the problem? This gives "you" a climate denier a huge opportunity to buy at a discount and make a fantastic profit of this global warming "rubbish".

PS forget growth, this just makes you a shade on the deniers as expotential growth for ever on a finite planet cant be done even simple math points to it.