The Reserve Bank of New Zealand, also known as Te Pūtea Matua, has taken a significant step in promoting a stable financial system in New Zealand. They have recently issued new Guidance to assist regulated entities in effectively managing climate risks.
In their role of safeguarding the country’s financial stability, Te Pūtea Matua recognises the growing threats posed by climate change to the economic landscape. Kate Le Quesne, the Director of Prudential Policy, emphasised the need for diligent risk management by financial entities, considering the increasing impacts of climate change, such as more frequent severe weather events and the necessity for business models to adapt to a changing climate.
The newly introduced Guidance is not a one-size-fits-all solution, but rather provides a framework for banks, insurers, and other regulated firms to customise their approach to identifying, managing, and monitoring climate-related risks. This initiative was developed through a consultative process that began in March of the previous year, leading to revisions of the draft Guidance. The enhancements include the incorporation of practical examples, streamlined content to minimise overlap with existing guidelines, and stronger alignment with the prudential regulatory framework.
Additionally, the structure of the Guidance now aligns with the Aotearoa New Zealand Climate Standards, facilitated by the External Reporting Board. This alignment aims to simplify the process for entities engaging with both documents, although the Guidance does not provide direct advice on climate-related disclosures.
Te Pūtea Matua’s proactive approach, informed by sector feedback, underscores its dedication to evolving risk management practices and legislative frameworks in response to climate change.
Kate Le Quesne stated, “The Guidance outlines our expectations of how regulated entities should identify, manage, and monitor climate-related risks. It is not prescriptive, as entities are in the best position to determine how to apply it to their business models and strategies.” This approach reflects an understanding that effective climate risk management is crucial for the long-term well-being and prosperity of New Zealanders, in response to both current and future climate-related challenges.
This latest development in the financial sector shows the commitment of Te Pūtea Matua in addressing the impacts of climate change and promoting sustainable financial practices in New Zealand. They are taking proactive steps to ensure the stability of the financial system in the face of climate-related risks, and this Guidance will serve as a valuable resource for regulated entities in managing these challenges.
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