The Reserve Bank wants to find out to what extent climate change is being factored into New Zealand's current house prices.
That's one thing the RBNZ will be looking at as part of its new Climate Change Strategy it released on Thursday.
Other things that the RBNZ plans to delve into include the insurance sector's response to climate risks and the impact of climate change on New Zealand farms - particularly "highly leveraged" ones.
There's no detail included in the strategy as to just how the RBNZ will go about eliciting this information - and how it would be able to measure the impact of climate change on such things as house prices and indeed whether there is a current impact.
Reserve Bank Governor Adrian Orr says the central bank wants to contribute to the Government’s objective of a sustainable, productive and inclusive economy.
"Where possible, we want to facilitate a smooth transition to a low carbon economy while ensuring that this does not diminish or adversely impact the soundness and efficiency of the financial system."
He says the bank’s climate change strategy includes monitoring and managing the bank’s impact on climate, reflecting climate risks within its core functions, and contributing to wider efforts to identify, monitor and manage climate risks within our economy and financial system, and as part of the global central banking and regulatory community.
The RBNZ's new Climate Change Strategy says that understanding, quantifying and managing risk is critical to many of the Bank’s core functions. This includes the setting of monetary policy, the monitoring of financial stability risks and financial markets, and the identification of appropriate prudential requirements.
"In conducting these core activities, the bank must have regard to all relevant risks and operate according to appropriate time horizons. Climate change will increasingly represent an important risk that we must factor into our decision-making when carrying out our functions."
Specific matters the RBNZ will look at include considering the impact of climate change policies and private sector adaptation to climate change on inflation and labour market outcomes as per the mandate of monetary policy and analysing the potential impact of climate change on future capital and migration flows, and the implications for the New Zealand economy and financial system.
The RBNZ's going to undertake "more in-depth analysis of the potential implications of climate change for financial stability". Among other things, the Bank expects to:
- Analyse the insurance sector’s response to climate risks, and explore the risks posed by New Zealand’s exposure to off-shore reinsurance markets;
- Analyse the extent to which climate risks may be factored into current house prices across the country;
- Explore the impact of climate change on New Zealand farms, with particular focus on the potential impact on highly levered farms; and
- Explore options for incorporating climate risks within its stress testing framework.
The RBNZ's also going to engage with regulated entities to understand how climate related risks are being addressed within the sectors that the RBNZ regulates. As part of this, the Bank will engage with entities to explore their own internal climate risk strategies to evaluate the New Zealand financial system’s awareness and management of climate risks; and seek to identify opportunities to enhance disclosure of climate risks in New Zealand.
Additionally the RBNZ's going to monitor the development and operation of capital markets "to identify any impediments to the efficient provision of finance for ‘green’ investments".
The RBNZ has been welcomed as member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The Network 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.
Head of Department Financial System Policy and Analysis Toby Fiennes says the Reserve Bank is very proud to have been accepted as a member of the NGFS.
"Playing our part globally, and as a leader in the Pacific region, is important both in terms of reinforcing New Zealand’s reputation as a ‘good global citizen’, and in providing us access to the latest thinking around the globe."