26 Oct 2021

Reserve Bank outlines climate risk strategy

6:53 pm on 26 October 2021

The Reserve Bank has outlined its actions to alleviate and manage the economic risks associated with climate change.

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The Reserve Bank building. Photo: RNZ / Samuel Rillstone

It says the financial stability risks associated with climate change are significant, requiring an urgent response.

The Reserve Bank strategy has three components, which include managing its own emissions, working with regulated entities on climate risk management, and leading the Council of Financial Regulators' climate work.

The Central Bank said it had made progress in understanding its own carbon footprint, and increased the scope to include emissions from purchased goods and services.

"Ongoing climate change has brought with it material economic and financial risks that we are obliged to identify, manage, and mitigate as part of our daily activities," Governor Adrian Orr said.

"The financial stability risks associated with climate change are significant, necessitating an urgent and collaborative response.

"Our efforts at Te Pūtea Matua include ensuring our own house is in order, as well as working directly with our regulated institutions and domestic and global networks to best manage the climate transition."

The RBNZ said it was also an active member along with 95 other central banks and supervisors of the Network of Central Banks and Supervisors for Greening the Financial System.

Among the risks facing the economy is the scale and transition to low carbon, such as emission pricing pushing up costs in the energy, transport or agriculture sector.

RBNZ head of financial system policy and analysis Toby Fiennes said banks and insurers regulated by the RBNZ should take it into account.

"We have set them on the path, we've given them some stress tests, so the External Review Board have got this disclosure framework now.

"It's really up to them to pick up the baton and to make sure that they can manage the transition risk, to make sure that their clients are prepared and they migrate their client base from the old brown economy to the new green economy."

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