The Reserve Bank of New Zealand – Te Pūtea Matua has taken a significant step towards fostering a stable financial system in New Zealand with the publication of a new Guidance aimed at helping regulated entities manage climate risks.
As the guardian of the nation’s financial stability, Te Pūtea Matua claims it recognizes the increasing threats that climate change poses to the economic landscape. According to Kate Le Quesne, the Director of Prudential Policy, climate change’s impacts, such as more frequent severe weather events and the viability of business models in a changing climate, necessitate diligent risk management by financial entities.
The recently unveiled Guidance is not a one-size-fits-all prescription but rather offers a framework for banks, insurers, and other regulated firms to tailor their approach to identifying, managing, and monitoring climate-related risks. This initiative stems from a consultative process initiated in March of the previous year, which led to revisions of the draft Guidance. Enhancements include the inclusion of practical examples, streamlined content to avoid overlap with existing guidelines, and stronger ties to the prudential regulatory framework.
Moreover, the layout of the Guidance now mirrors the Aotearoa New Zealand Climate Standards, facilitated by the External Reporting Board. This alignment aims to simplify the process for entities engaging with both documents, although the Guidance stops short of advising on climate-related disclosures directly.
Te Pūtea Matua’s proactive stance, enriched by sector feedback, highlights its commitment to evolving risk management practices and legislative frameworks in response to climate change.
“The Guidance sets out our expectations of how regulated entities should be identifying, managing, and monitoring climate-related risks. The Guidance is not prescriptive, as entities are best placed to decide how to apply it to their business models and strategies,” Ms Le Quesne emphasized. This approach reflects an understanding that effective climate risk management is crucial for the long-term well-being and prosperity of New Zealanders, adapting to both current and future climate-related challenges.