Law to Report Impact of Climate Change: New Zealand

• 30 Oct 2021

Why in News

New Zealand has become the first country to pass laws requiring banks, insurers and investment managers to report the impacts of climate change on their business.

Key Points

• About:
  
  • The new laws will require financial firms to explain how they would manage climate-related risks and opportunities, and the disclosure requirements will be based on standards from New Zealand’s independent accounting body.
    
    • The law will force financial firms to assess not only their own investments, but also to evaluate the companies they are lending money to, in terms of their environmental impact.
  • The disclosures will become mandatory for financial years beginning in 2023.
    
    • The New Zealand government has introduced several policies to lower emissions including promising to make its public sector carbon-neutral by 2025 and buy only zero-emissions public transport buses from the middle of this decade.
• Significance:
  
  • It will ensure that financial organisations disclose and ultimately take action against climate-related risks and opportunities.
  • With the climate reporting being open, investors would get to see how the company they plan on putting their money into, impacts the environment.
    
    • Which would also make financial institutions rethink their decisions, as well as consider real-world impact caused.
  • This law will bring climate risks and resilience into the heart of financial and business decision making.
• Need of this Law for India:
  
  • With stock exchanges like Bombay Stock Exchange (BSE) that hit a market capitalization of USD 2.8 trillion, having a measure to help make organisations in India more eco-friendly could definitely create a huge impact.
    
    • But for this measure to become successful in India, it would have to be more comprehensive, considering the size of the nation and the number of businesses that exist.
• Related Initiatives:
  
  • Network for Greening the Financial System (NGFS):
    
    • It is a global network of central banks and supervisory authorities advocating a more sustainable financial system.
  • Task Force on Climate-related Financial Disclosures (TFCD):
    
    • TFCD was created in 2015 by the Financial Stability Board (FSB) to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders.

Source: IE