New Zealand is the first sovereign state to approve a law requiring financial institutions, insurance companies and asset managers to disclose climate change risks.
A new challenge is on the horizon for large banks and financial institutions around the world. New Zealand is the first sovereign state to approve a law requiring financial institutions, insurance companies and asset managers to disclose climate change risks.
The legislation also requests corporates to act on the findings, and to explain how they intend to address climate-related issues. Other countries are expected to follow New Zealand’s example. The European Union’s corporate sustainability rules require certain companies to report annually on their social and environmental impact and risks.
In fact, most governments are finally waking up to the necessity of monitoring the impact of the climate emergency on corporate businesses, while some of the largest US banks, from JPMorgan Chase to Bank of America and Goldman Sachs, are already fine-tuning plans aimed at tackling
global warming.
“We definitely see climate-related disclosures becoming a requirement in the coming years, with more and more stress tests being rolled out by banking regulators,” comments Mario Unali, senior portfolio manager at Kairos Partners. “Banks face higher costs for climate risk management, but this will also play a pivotal role in financing corporates’ adaptation costs and the increasing demand for sustainable finance products. Opportunities for the sector look compelling.”
Major regulators are also stressing the need to transition to a greener economy. The IMF called upon central banks to do “their part in fighting global warming.” The ECB, warning that ignoring climate concerns might heavily shrink Europe’s economy in the next few decades, has mandated stress tests for European banks in 2022 to assess their climate exposure and vulnerability. The Bank of England, after receiving a “green mandate” from the UK government to help the country achieve net-zero emissions by 2050, has also requested stress tests for British lenders. The Federal Reserve is similarly looking into assessing the resilience of the US financial system, while at the same time readying new guidance on climate change to help financial institutions mitigate their risks.
