The Climate Change Commission’s latest emissions monitoring report is a timely reminder that New Zealand’s climate challenge is increasingly one of creating the conditions for investment.
The Commission’s report finds that while emissions have fallen in recent years, many of the reductions are not enduring, progress has slowed, and New Zealand risks missing future emissions budgets without stronger action. It recommends addressing market barriers, including the upfront costs of fuel-switching and other investments needed to reduce emissions.
The findings reinforce the need for leadership from Government to develop long-term plans that create the conditions for private capital to finance New Zealand’s transition.
The technology to decarbonise much of our economy already exists, and in many cases transitioning will enhance resilience for homes and businesses. The challenge is creating long-term joined-up sector strategies and enabling policy settings that make those investments commercially viable.
There is growing international recognition that financial institutions cannot solve climate change through better risk management, disclosure or reporting alone.
Financial institutions can only finance what is financeable and invest in what is investable. The only response that reduces the underlying climate risk is decarbonisation, but investment will only flow at the scale required when businesses, lenders and investors have confidence in the long-term direction of travel.
The Commission’s report recognises that delays increase costs and narrow New Zealand’s options. It also points to practical barriers, including the upfront costs of fuel-switching and the need for stronger incentives and policy certainty. These are challenges CSF has consistently highlighted, that must be addressed if private capital is to accelerate the transition to a resilient, competitive, low-emissions economy.
Earlier this week, Columbia Center on Sustainable Investment Director Lisa Sachs told a CSF audience that governments and markets each have distinct roles in responding to climate change.
Rather than expecting financial institutions to drive decarbonisation on their own, Sachs argued that governments must establish the policy, regulatory and market conditions that enable investment, while finance performs its role of allocating capital to viable opportunities and managing risk within a portfolio.
That message is increasingly relevant for New Zealand.
We should not confuse financial risk management with climate action. Climate disclosures and better risk management are important, but they do not reduce emissions on their own. Decarbonisation does.
To attract investment into clean energy, transport, industry and buildings, New Zealand needs a clear long-term economic vision supported by sector transition plans and stable policy settings. That is how we make the transition investable.
CSF policy priority recommendations include a long-term economic strategy and clear sector transition plans, particularly for energy and transport, to improve investment certainty, enhance economic resilience and accelerate emissions reductions.
