New Zealand is set to become the first country to mandate that the financial sector report on climate-related risks.
The new framework will operate on a comply-or-explain basis, utilizing the Task Force on Climate-related Financial Disclosures (TCFD) framework, recognized globally as a standard for best practices.
Entities subject to these requirements will be obligated to make annual disclosures addressing their governance structures, risk management protocols, and strategies for mitigating the impacts of climate change. Should any organization be unable to fulfill these disclosure obligations, they must provide a rationale for their non-compliance.
Approximately 200 organizations will be required to disclose their exposure to climate-related risks. This initiative will encompass all registered banks, credit unions, and building societies with total assets exceeding $1 billion, ensuring that nearly 90% of New Zealand’s assets under management are included in the disclosure framework.
James Shaw, New Zealand’s Minister for Climate Change, stated, “The reforms I am announcing today will integrate climate risks and resilience into the core of financial and business decision-making. They will mandate that climate risk disclosures are transparent, comprehensive, and an integral part of our financial ecosystem.”
Shaw emphasized that while countries like Australia, Canada, the UK, France, Japan, and the European Union are pursuing various forms of climate risk reporting, New Zealand is taking the lead by establishing mandatory disclosures across its financial system.
If approved by Parliament, financial entities may be required to begin these disclosures as early as 2023.