In a move that is likely to be widely followed by other countries, New Zealand is bringing in a law forcing financial firms to report on the ecological impact of their investments.
All companies that fall under the bill will be required to make disclosures on climate risks and those that are unable to disclose this information will have to explain the reasons why.
James Shaw, New Zealand’s Climate Change Minister, says that fund managers, banks, and insurers will require to report on the environmental impact of their investments. Financial firms will be required to explain how they are going to manage climate-related risks and prospects.
The legislation, which gets its first reading this week, is part of a wider plan for the country to be carbon neutral by 2050. It has already introduced policies to meet this goal and is also aiming to make its public sector carbon neutral by 2025. As part of this, it has already announced that it will buy only zero-emission public transport vehicles by this date.
Mr. Shaw said that – “We simply cannot get to net-zero carbon emissions by 2050 unless the financial sector knows what impact their investments are having on the climate. This law will bring climate risks and resilience into the heart of financial and business decision making.”
The bill will affect around 200 of the country’s biggest financial firms, as well as foreign firms that have assets of over $703 billion. When in place, the law will force financial firms to not only assess their own investments but also to evaluate the environmental impact of the companies they lend to.
New Zealand’s Commerce and Consumer Affairs Minister, David Clark said that –
“Becoming the first country in the world to introduce a law like this means we have an opportunity to show real leadership and pave the way for other countries to make climate-related disclosures mandatory. While some businesses have started publishing reports about how climate change may affect their business, strategies, and financial position, there is still a long way to go.”
It is expected that once the law is passed, companies will have to start reporting on this by 2023.
Prime Minister Jacinda Ardern was recently returned to power in the biggest landslide victory for her center-left Labour Party in more than fifty years. The popular leader, who has been highly praised for her leadership, including how the country dealt with the coronavirus epidemic, said that climate change is the “nuclear-free moment of our generation.”
This action by New Zealand is likely just the start of a global movement towards “carbon accountability.” It will be closely monitored by countries around the world, many more of whom are likely to follow suit in the near future.
Financial firms will already be taking a closer look at their portfolios and many investments that were once considered lucrative may find themselves having to reassess their priorities.