Policy Submissions

Climate related financial disclosures are here to stay. Other countries are moving to taxonomies and disclosures in the competition for markets. If New Zealand stands still, we will fall behind.

We need to make it easy for potential foreign direct investment to engage, and our exporters need to be fit for the markets they are targeting.

That’s why we joined forces with the Sustainable Business Council, Institute of Directors and the Climate Leaders Coalition to commend the responsiveness of the External Reporting Board (XRB) to market concerns regarding the regulatory framework and the commitment to providing further guidance on the disclosures. This proactive approach is crucial in ensuring clarity and consistency as Aotearoa navigates these changes.

Read our submission

The Centre for Sustainable Finance: Toitu Tahua took the opportunity to comment on the External Reporting Board’s consultation on the governance and risk management section of the Climate-Related Disclosures.

The Centre for Sustainable Finance: Toitu Tahua took the opportunity to comment on the Ministry for the Environment’s Emissions Reduction Plan (ERP) discussion document, Te hau mārohi ki anamata | Transitioning to a low-emissions and climate-resilient future.

At the close of COP26 earlier this month, countries were urged to raise ambition and deliver on their pledges and commitments, in order to keep the Paris target of limiting global warming to 1.5 degrees Celsius alive. In light of the IPCC’s sixth assessment report – described as “code red for humanity” – the stakes could not be higher. This is recognised by this Government’s declaration of a national ‘climate emergency’.

We urge swift follow-through by the Government with an ERP that meets New Zealand’s first emissions budget and lays the foundations for the broader and longer-term structural and systemic changes needed to achieve a net-zero, equitable and inclusive transition. As well as meeting New Zealand’s international commitments, a rapid but managed domestic transition is the best way to manage economic and financial system risks and position New Zealand favourably in international trade and financial markets.

With leadership from Government, we must create one kaupapa that everyone can get behind. This means genuine collaboration and co-design with stakeholders – starting now. We agree on the critical importance of funding and financing to drive the climate transition. We need to get carbon pricing right and increase, by an order of magnitude, allocation of public money for funding and financing of the transition including for the purposes of enabling and accelerating private sector investment.

We offer our support and engagement to work with Government and other stakeholders on this.

Ahakoa ko hea tāua haere atu ai. Ka kōkiri tahi tāua.

Regardless of where we go on this journey, we’ll go together.

We thank the Ministry for Environment for the opportunity to comment on our draft National Adaptation Plan Te mahere urutaunga ā-motu (tuhinga hukihuki). Toitū Tahua: Centre for Sustainable Finance (the Centre) broadly supports the need for an adaptation plan and for it to be enabled by an effective, sustainable funding and finance strategy.The March 2022IPCC reportin to climate change adaptation, impacts and vulnerability, made clear that Aotearoa New Zealand, with the rest of the world, has a brief and closing window of opportunity to secure a liveable future through climate change mitigation and adaptation.

The IPCC has also highlighted that current commitments put humanity on a 3.2 degree trajectory, and reminded us that adaptation without mitigation is an insufficient response.Keepingwithin 1.5 degrees will require reaching peak emissions in 2025. Projected warming under current global emissions reduction policies would leave many human and natural systems at very high risk and beyond adaptation limits.New Zealand scientistsproposed that the required steep emission cuts and adaptive responses will take unprecedented, genuine collaboration between central and local governments, the private sector, indigenous peoples, and all communities. This reasoning is very much in line with our previous submission on discussion document‘ Te hau mārohi ki anamata | Transitioning to a low-emissions and climate-resilient future’.

The present submission builds on the previous. Our most urgent and critical message was, and continues to be, the need for private and public sector leadership and collaboration in funding and financing the equitable and fair transition to net zero by 2050.

Key points in the present submission are:

•We strongly support government leadership in the provision of data and data infrastructure to enable equitable access to climate and nature-related data and insights.

•We recommend developing a strategic framework for sustainable investment, which willset out a coherent narrative and logic, provide visibility over which activities are considered sustainable (thereby helping to avoid greenwashing) and create incentives for reporting entities, investors and capital providers to be transparent and honest.

•We encourage further consideration of the full role of the insurance industry in adaptation and mitigation.

•We support further guidance for the entities the RBNZ regulates, fund managers and all relevant financial service providers.

We encourage the active, formal, mandated participation of public officials in industry partnership networks and international platforms.We offer our support and engagement to work with Government and other stakeholders on this.

Ahakoa ko hea tāua haere atu ai. Ka kōkiri tahi tāua.Regardless of where wego on this journey, we’ll go together.

Ngā manaakitanga,

The Reserve Bank of New Zealand – Te Pūtea Matua is working to better understand the impacts of climate change on the stability and resilience of the financial system.

RBNZ is uniquely positioned to enable alignment of the Aotearoa New Zealand economy with a low emissions future. The Centre’s recent submission on the Risk Weights Omnibus Consultation Paper is a call for RBNZ to demonstrate leadership and provide further clarity on the influence of climate and sustainability factors on the risk profile of lending made by banks to support Aotearoa New Zealand’s transition to a low emissions economy.

Capital requirements are regulatory standards for banks that determine how much liquid capital (easily sold assets) RBNZ requires them to keep on hand, as a proportion of their overall holdings. Risk weights adjust capital requirements according to the riskiness of lending or investment: the riskier the credit, the higher the capital required to be kept in reserve by the bank to guard against insolvency.

Capital requirements and risk weights should reflect climate-related risks. Higher risk lending (e.g. long dated lending linked to the fossil fuels industry) should require greater capital, while lending that can be shown to have a positive impact on New Zealand’s climate adaptation or transition (such as solar or wind farm developments) should receive favourable risk weighted asset treatment. This would better reflect the anticipated long-term favourable risk profile of these investments and the critical role they will play for our country.

There is evolving international discourse around the intersection of climate-related risk and financial system stability. Evidence and expectations will inevitably evolve through the Basel Committee. We submit that New Zealand should be aligned with but not constrained by G20 processes, and waiting for international examples is not a reason to stall leadership, collaboration and progress at home.

The message from RBNZ is clear: climate change poses a direct challenge to financial stability.

The Centre commends this message, along with the Reserve Bank’s ongoing involvement in the Network for Greening the Financial System, and the three pillars of its 2018 climate strategy.

• Monitoring and managing our impact on climate
• Understanding and incorporating the impact of climate change on our core functions
• Providing leadership as an institution

Following our March submission on the Reserve Bank of New Zealand ‘Risk Weights – Omnibus Consultation Paper’, the Centre has submitted our response to the RBNZ consultation paper “Managing climate-related risks: Guidance for regulated entities”. In doing so, we supported the NZBA view which emphasises the need for this guidance to adapt and evolve over time through regular reviews.

Much of the ‘2023 Draft advice to inform the strategic direction of the Government’s second emissions reduction plan’ aligns with the Centre’s Roadmap and 2023 recommendations to the Government. We commend the Commission on this work.

The Climate Change Commission is clear in its advice that “a lack of clarity on the approach to achieve net zero long-lived gas emissions by 2050 and beyond is likely to create ongoing policy uncertainty and impact decision-making in the public and private sectors. …Ultimately, prolonged uncertainty is more likely to lead to a more disruptive transition with higher costs and more significant impacts. The question of how to meet the 2050 net zero target is therefore of core importance to the second emissions reduction plan.”

Recent developments in funding and financing the transition, such as the Sovereign Green Bonds framework, the Climate Emergency Response Fund, and the 2+2 Dialogue, are positive steps.

However, more work is needed to develop credible plans for funding and financing the transition. The Centre’s submission focuses on key ‘system enablers’ to accelerate capital flows.

Our recommendations are guided by the understanding that a low emissions economy is core to Aotearoa New Zealand’s economic value proposition, and that Sustainable Finance plays a crucial role in enabling the transition.

Our submission calls for public-private collaboration to develop net zero funding and financing plans for key transition sectors including:

• Transport
• Energy and industry
• Agriculture
• Forestry
• Waste

Our submission also highlights the importance of strategic partnerships with the Centre to ensure the second Emissions Reduction Plan (ERP) benefits from the expertise that sits within Aotearoa New Zealand’s leading financial institutions.

Developing essential climate information architecture should be a priority.

We also emphasise the timely and necessary June 2023 review of the Emissions Trading Scheme (ETS) as a key lever for emissions reduction. CSF will submit separately on this matter.

The NZ Emissions Trading Scheme (NZ ETS) is currently under review by the Government to ensure its effectiveness. As part of this effort, the Ministry for the Environment | Manatū Mō Te Taiao is seeking input on the redesign of the permanent forest category, aiming to strike a balance between emissions reductions and support for removals.

Considering the current state of the NZ ETS, the importance on valuing long term environmental and social impacts, and the feedback of our partners and stakeholders, the Centre endorses the Government’s proposed reform of the NZ ETS, including the redesign of the permanent forest category.

Key messages from the Centre:

1. The ETS is a critical component of a just and equitable climate transition, but it is also only one part. Ensuring it is part of a broader policy portfolio is crucial to achieve the desired outcomes.
2. The role of the ETS is to achieve gross emissions reductions, which requires a strong emissions price signal from the Government.
3. Maintaining investor and landowner certainty and confidence is crucial through any changes to the ETS.
4. Our preference is for options 3 & 4 from the review documentation, but more information on these should be provided before any changes to the ETS are finalised.

The Centre’s submission on New Zealand’s second Emission Reduction Plan covers chapter 4 of the discussion document: ‘How we fund and finance climate mitigation’ and is focused on scaling private investment in climate mitigation.

Key messages from the Centre:

Government interventions to increase investment in sustainable or decarbonisation activities should involve a combination of regulatory, financial and market-driven approaches. The Government’s role is to ensure:

• Clear, stable and coherent policy frameworks 
• Scale, urgency and crowding in private capital 
• Provide value for taxpayers
• Risk mitigation
• Market development and standards
• Settings that support efficient, vibrant markets
• International cooperation 

These interventions work best when they are part of a comprehensive strategy that aligns government policies with the broader goals of sustainable development and climate action.

The three main barriers to enabling more private investment in climate mitigation are:

1. Short-term focus
2. A lack of consistency and clear leadership
3. Lack of long-term industry outcomes and objectives to facilitate investment

The three main actions the Government can do to enable more private investment in climate mitigation for the next 18 months are:

1. Market development
2. Accelerate the national energy strategy work
3. Develop a coordinated approach to facilitate climate, nature and transition investment