“We simply cannot get to net-zero carbon emissions by 2050 unless the financial sector knows what impact their investments are having on the climate,” Climate Change Minister James Shaw said in a statement. “This law will bring climate risks and resilience into the heart of financial and business decision making.”
The legislation would require financial firms to disclose how climate change affects their business, and explain how they will manage climate-related risks and opportunities. If the bill is passed, the first disclosure reports would be published by companies as soon as 2023.
“Requiring the financial sector to disclose the impacts of climate change will help businesses identify the high-emitting activities that pose a risk to their future prosperity,” Shaw said, “as well as the opportunities presented by action on climate change and new low carbon technologies.”
The latest action comes amid a growing focus by governments and financial regulators on the climate exposures of banks and asset managers, which is forcing these firms to rethink the projects they fund.
According to sustainability non-profit Ceres, more than half the syndicated loans of major US banks are in sectors of the economy that make them vulnerable to the risks posed by climate change. Syndicated loans are funded by a group of banks.
The European Central Bank said in November that it will start assessing how bank balance sheets account for climate risks starting next year.
Banks will, for example, be expected to disclose how flooding and storms could affect the value of their real estate portfolios and customer supply chains, as well as take into account losses that could arise if businesses adjust their operations to be less carbon intensive.
In its November financial stability report, the US Federal Reserve directly addressed the implications of climate change for banks for the first time, saying that better disclosure could improve the pricing of climate risks and avoid the kind of abrupt changes to asset prices that cause financial system shocks.