KIWI banks have been slow to disclose how they are preparing for climate change risks.
Reserve Bank New Zealand governor Adrian Orr said it was “disappointing” there was only “scant” evidence climate change was being considered during daily business decisions.
He was taking part in a virtual roundtable on how financial services organisations needed to plan and prepare - even though the risks are still not yet fully understood.
He acknowledged this made it difficult persuading banks and other financial institutions to look at the long-term consequences.
He said: “We see financial stability being best maintained when all relevant risks are adequately identified, priced, and allocated to those best able to manage them.
“Climate change and its associated risks provide a direct challenge to financial stability.
“The risks are material but extremely difficult to identify, price, allocate, and manage with accuracy.
“We simply do not know the true scope and scale of the environmental risks we take on during our daily economic activities.”
He warned future generations would face the costs of the decisions made today.
“There is no obvious market or price for selling climate risk, and hence no personal reward for managing it,” he said.
“And market participants often take a short-term, myopic, view in their decision making, pushing longer term problems to the never-never.
“What this means is that we will never have perfect information on the risks of climate change. However, firms’ disclosure on how they identify and manage climate change risks greatly assist to sharpen our focus.
“After all, it is what gets measured that generally gets managed. And it is far often better to imperfectly measure something than ignore it completely.
“What we already know is that climate change holds far-reaching implications for New Zealand’s financial system.”
Drought and sea level rise are already being reckoned with when it comes to physical impacts along with estimates of what it will cost in monetary terms.
The National Institute of Water and Atmospheric Research (NIWA) estimates $12.5 billion of property is already exposed to extreme coastal flooding in New Zealand, he explained.
Every 10cm of sea level rise puts another $2.4 billion of assets at risk.
Mr Orr added: “Our survey of New Zealand insurers and banks last year found broad concern that climate change exposed the financial system to significant risk.
“But, we disappointingly found scant evidence that the climate risk concerns are influencing daily business decisions.
“The lack of action may relate to the partial awareness. Only 60 percent of surveyed banks and one third of insurers disclose some climate-related information.
“This creates inconsistent information and comparability, leading to uninformed decisions.
“Hence, we support the mandatory disclosure of climate risk, especially one that is collaborative in approach with industry.”
Drawing on the response to COVID-19, he said it proved that New Zealand could take action.
“Like climate change, COVID-19 highlights interdependencies between economic prosperity, environmental sustainability, and social inclusion,” he said.
“COVID-19 has done something climate change has struggled to do: engage everyone on Earth. We have all been disrupted.
“Our current response to COVID-19 in New Zealand shows that when the risk is acute, we can act together in a powerful, effective response.
“This is motivating: with climate change the risk is also acute.
“The current economic regeneration challenge requires bringing forth opportunities to reduce carbon emissions and adapt.
“We need to ensure that whatever we rebuild, reshape or invest in now is sustainable, long term in its horizon, helps us build climate resilience, and benefits generations to come.”
