In world first, New Zealand passes climate change law that targets financial firms

New Zealand is set to become the first country in the world to mandate that financial firms report on the environmental impact and exposure of their investments. From 2023, companies must report on how their lending and investments effect ongoing efforts to reduce carbon emissions. They must also divulge the extent to which their investments are exposed to climate-related risks and opportunities. According to James Shaw, New Zealand’s Minister of Climate Change and Co-leader of the Green Party, “This law will bring climate risks and resilience into the heart of financial and business decision making.”

The legislation, which will affect around 200 domestic and foreign firms with assets totaling over $703 million U.S. dollars, is part of New Zealand’s broader effort to set ambitious environmental targets for its public and private sectors. The country recently overhauled its Resource Management Act, one of the world’s first laws focused on sustainable management. In its place will be three separate pieces of legislation, one of which exclusively focuses on New Zealand’s response to climate change. Proposed plans include switching to environmentally friendly farming practices, reducing livestock numbers, taxing farmers for emissions, and planting more permanent, native forests. The country aims to be carbon neutral by 2050.

New Zealand is tiny and comprises only 0.17% of global emissions. However, on the issue of climate change, the country sees itself as a role model for the rest of the world. Indeed, regulators in Europe have also start to turn their attention towards banks and asset managers that are too exposed to climate-related risks. Last November, the European Central Bank announced that it will start assessing how banks should account for real estate holdings vulnerable to climate related risks like flooding, and storms.

In general, governments and corporations seem more willing than ever to consider new legislation and taxation to tackle climate change. Earlier this week French lawmakers voted to ban short haul flights where the same journey could be taken by train in less than 2.5 hours. Similarly, after receiving government bailout with provisions to cut its carbon footprint, Austrian Airlines replaced one of their shorter routes with increased train services. In the U.S. JP Morgan and Goldman Sachs have launched plans to reduce investments in the fossil fuel industries, and better align their financial activities with the Paris Climate accord. Also this week, more than 300 corporations, including Target, Verizon, and Google, asked President Biden to double the emissions targets set by the Obama administration. According to Anne Kelly, vice president for government affairs at sustainability nonprofit Ceres, “this signals a major shift in the corporate community’s understanding of the urgency of climate change as a systemic financial risk.”

Back in New Zealand, the one-of-a-kind bill is expected to receive its first reading in parliament this week. And it’s likely that still more ambitious legislation is on the way. Shaw, chief architect of the country’s plans to fight climate change doubts that global heating can be restrained, but, he says, “that’s all the more reason to try.”