Policy Submissions

The New Zealand Government has an ambitious economic growth agenda that aims to unlock New Zealand’s potential, grow the economy and ease the cost of living for New Zealanders. 

The physical and transition impacts of climate change and environmental issues on society and financial institutions are real and some are already manifesting now. Some risks—especially systemic ones like climate disruption—cannot be diversified away or mitigated through stock selection. 

Institutional directors, as fiduciaries, are legally bound to act in the best interests of their members and investors, which means recognising and responding to these emerging risks. 

High quality foreign direct investment will only enter New Zealand when risks are appropriately managed, priced, or offset by returns. 

There is nothing more likely to dissuade foreign capital from participating in New Zealand markets than the New Zealand government requiring that capital to invest in a way consistent with the government’s ideology.  

That’s why we have made a submission on The Financial Markets (Conduct of Institutions) Amendment (Duty to Provide Financial Services) Amendment Bill, colloquially known as the “Woke Banking” Bill. 

Key points from the CSF submission: 

Financial institutions must have the freedom to assess, price and size their exposure to all risks, including systemic risks.

There is nothing more likely to dissuade foreign capital from participating in New Zealand markets than the New Zealand government requiring that capital to invest in a way consistent with the government’s ideology. This Bill undermines all the government activity to attract capital to New Zealand.  

The Bill will add significant cost to financial institutions to validate what are clearly accepted lending and investment practices for no benefit.

The Bill conflates prudent risk management practices with ideological bias; 

• to try to force banks to lend to businesses that pose long-term risks to our collective environment, and financial stability 
• to undermine banks’ ability to manage reputational, regulatory, and transition risks prudently 
• to put subsidiaries of Australian or other offshore owned banks or insurers in an untenable position through misalignment between risk appetite of their owners, their own credit/risk policies and ability to comply with the law 
• to force insurers to ignore risks which fall under the labels attached in the Bill 

The Bill is fundamentally misconceived and should not proceed in its current form. 

Read our submission here.

RIAA has also made a submission recommending the Finance and Expenditure Committee rejects the Bill. Read their submission here.

Climate related financial disclosures (CRD) 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 (SBC), Institute of Directors (IoD) and the Climate Leaders Coalition (CLC) 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, and submit on the proposed 2024 Amendments to Climate and Assurance Standards.

Key points from the submission:

• SBC, CLC, IoD and CSF welcome the XRB’s recognition of challenges faced by climate reporting entities.
  
• Re-iterated the importance of CRD for maintaining credibility and ensuring compliance with global climate standards.
  
• Gave support for a scheme that is internationally interoperable and that meet the information requirements businesses have, domestically or internationally.
  
• Gave support for concerns raised about liability burdens placed on directors – and suggest that director liabilities should support organisations to take a less conservative and risk-averse approach to climate reporting.
  
• Raised concerns that broad guidance information is not leading to best practice, and is instead incentivising lowest risk outcomes. More detailed and specific guidance could drive companies to adopt more ambitious and exemplary practices.
  
• Re-iterated the importance of ensuring scheme is equitable, timely and stakeholders are duly engaged.

Submitted: Oct, 2024

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.

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

Key points from the submission:

• Recommended that XRB guidance includes ensuring preparation of disclosures that are easily understood and accessible by secondary users, alongside primary users.
  
• Suggestion to broaden the objective of the disclosures to include enabling primary users to understand the process to engage stakeholders in planning for a net-zero transition, alongside role an entity’s board plays in overseeing climate-related issues and the role of management in assessing and managing those issues.

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 urged 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.

Key points from the submission:

• The most urgent and critical message is the need for private and public sector leadership and collaboration in funding and financing the transition.
• Maximum ambition and minimised delay in domestic emissions reduction and investment in the local economy and infrastructure (over purchase of international abatement) should be a key principle of the Emissions Reduction Plan.
• Widespread mindset change across the nation is fundamental in the achievement of the transition.
• Develop a whole of Government sustainable finance strategy with climate finance as a priority.
• Getting carbon pricing right should be among the Government’s top priorities.
• Increase (by order of magnitude) allocation of public money for funding and financing of the climate transition including for the purposes of enabling and accelerating private sector investment. This needs to be secure and ring-fenced funding; it should not be subject to budgetary appropriations to ensure it is enduring and depoliticised.
• Government needs to play a stronger role in market creation, building the pipeline of investment opportunities and products and enhancing access or commercial viability for different private sector investor types. This will require institutions, funds and partnerships that can undertake investments at a much larger scale and across the commercial maturity spectrum.
• The net-zero transition can be enabled through a flexible, networked approach to funding and financing. Government should convene and draw on the perspective, knowledge and expertise of the many individuals and organisations advancing this agenda.
• Create a kaupapa that everyone can get behind. Collaborate with stakeholders from the beginning to set an agreed ERP national vision, strategy and plan for an equitable transition.
• Develop an open-source portal of climate-related physical and transition risk data and information [at a reasonable resolution] to enable business and civil society to assess key climate risks to specific assets and properties and start to plan and adapt accordingly.
• Consider options for more effective and efficient funding of climate innovation and infrastructure.
• Enable businesses, especially SMEs, Iwi and Māori businesses to put in place appropriate sustainability strategies, governance structures, data, measurement and reporting capabilities so they can access sustainable finance.

Submitted: November, 2021

The March 2022 IPCC report on 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.

Which is why The Centre for Sustainable Finance: Toitū Tahua (CSF) took the opportunity to submit to the Ministry for the Environment on the draft National Adaptation Plan Te mahere urutaunga ā-motu (tuhinga hukihuki).

New Zealand scientists have suggested 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. CSF broadly supports the need for an adaptation plan and for it to be enabled by an effective, sustainable funding and finance strategy.

Key points of the submission:

• Support for government leadership in the provision of data and data infrastructure to enable equitable access to climate and nature-related data and insights.
• Recommendation to develop a strategic framework for sustainable investment, which will set 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.
• Further consideration to be given to the full role of the insurance industry in adaptation and mitigation.
• Further guidance for the entities the RBNZ regulates, fund managers and all relevant financial service providers.
• Encouraging the active, formal, mandated participation of public officials in industry partnership networks and international platforms.

Submitted: June, 2022

There is evolving international discourse around the intersection of climate-related risk and financial system stability. The Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) is is uniquely positioned to enable alignment of the Aotearoa New Zealand economy with a low emissions future. The Centre for Sustainable Finance: Toitū Tahua (CSF) therefore made submission on the Risk Weights Omnibus Consultation Paper to 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.

Key points of the submission:

• The role of the Reserve Bank is to act as kaitiaki of the financial system, guarding the prudential soundness of New Zealand’s entities and the system as a whole. RBNZ is uniquely positioned to lead and enable an orderly transition to a low emissions economy.
• 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.
• Banks and insurers have a role to play in managing and mitigating climate-related financial risks, as does prudential regulation, however there are many challenges in assessing climate and sustainability risks.
• Capital requirements and risk weights should reflect climate-related risks. This will require new ways of thinking but is of the utmost importance.
• Further dialogue and consultation is needed to understand, appreciate and address the practical barriers currently preventing the adjustment of internal risk models.
• Climate-related financial risks are a priority, with broader sustainable development considerations such as iwi & Māori access to capital, nature, and biodiversity being core considerations for further consultation.
• New Zealand is in a strong position to innovate and lead on prudential regulation that responds to the unprecedented challenge of funding and financing the transition to net zero by 2050.

The Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) is is uniquely positioned to enable alignment of the Aotearoa New Zealand economy with a low emissions future. 

Following our submission on the Reserve Bank of New Zealand ‘Risk Weights – Omnibus Consultation Paper’, The Centre for Sustainable Finance: Toitū Tahua (CSF) submitted our response to the RBNZ consultation paper “Managing climate-related risks: Guidance for regulated entities”.

Key points of the submission:

• Supported for the submission put forth by the New Zealand Bankers Association
  (NZBA).Emphasising the need for this guidance to adapt and evolve over time through regular reviews.
• Given the evolving nature of how Climate Reporting Entities (CREs) understand and price climate risks and opportunities, we advocate for an open-minded approach to the continuous development of the Guidance.

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.”

Much of the ‘2023 Draft advice to inform the strategic direction of the Government’s second emissions reduction plan’ (ERP) aligns with The Centre for Sustainable Finance: Toitū Tahua (CSF) guiding document, The Sustainable Finance Forum Roadmap. We commend the Commission on this work.

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. We call on the Government to remove regulatory barriers, set rules and standards, incentivise and actively facilitate the flow of private capital and ensure that policy enables a strong sustainable finance market in Aotearoa New Zealand.

Key points of the submission:

• A call for public-private collaboration to develop net zero funding and financing plans for key transition sectors including: Transport, Energy and industry, Agriculture, Forestry, and Waste.
• Highlighting the importance of strategic partnerships with CSF to ensure the second ERP benefits from the expertise that sits within Aotearoa New Zealand’s leading financial institutions.
• Prioritising development of essential climate information architecture.
• That the June 2023 review of the Emissions Trading Scheme (ETS) is both timely and necessary as a key lever for emissions reduction. CSF will submit separately on this matter.

The New Zealand Emissions Trading Scheme (ETS) is an important financial lever, to send price signals to producers, consumers and investors, and to promote sustainable outcomes in New Zealand.

Currently, the ETS falls short in driving significant reductions in gross emissions. This was caused by a noticeable increase in forestry investments and speculative holding of units, which then led to lower prices. The cooling of prices was largely driven by government intervention and increased political uncertainty.

Considering the current state of the ETS, the importance on valuing long term environmental and social impacts, and the feedback of our partners and stakeholders, The Centre for Sustainable Finance: Toitū Tahua (CSF) endorses the Government’s proposed reform of the ETS, including the redesign of the permanent forest category.

Key points of the submission:

• 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.
• The role of the ETS is to achieve gross emissions reductions, which requires a strong emissions price signal from the Government.
• Maintaining investor and landowner certainty and confidence is crucial through any changes to the ETS.
• 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.

A low emissions economy is core to Aotearoa New Zealand’s economic value proposition, and sustainable finance plays a crucial role in enabling the transition. 

The Centre for Sustainable Finance: Toitū Tahua (CSF) believes that successful government interventions to increase investment in sustainable or decarbonisation activities should involve a combination of regulatory, financial, and market-driven approaches. 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.

Key points from the submission:

• The Government needs to establish clear, long-term policy commitments to decarbonisation and sustainability, ideally in collaboration with a broad cross-section of political parties across Parliament. Consistent and stable regulations provide investors with confidence that government policies will not change abruptly, reducing perceived risks.
• Initiatives should be designed to scale quickly to meet the size of the challenge, and to crowd in private capital.
• Ensure broader benefits are considered including reduction of future obligations under NDCs, resilience of energy system, reduction of fuel imports, health benefits of reduced pollution.
• Providing guarantees or insurance to cover specific risks associated with the development of a sustainable investment market can encourage private sector participation.
• Developing and promoting standards and a taxonomy for what qualifies as a green or sustainable investment helps investors identify credible opportunities and avoid greenwashing.
• Aligning domestic approaches (e.g. SF Taxonomy) with global standards makes it easier for global
  investors to invest domestically.