Climate change is a key risk to the financial stability of the New Zealand economy, Reserve Bank Governor Adrian Orr says.
Orr spoke at the Pacific Ocean Pacific Climate Conference on Wednesday.
He said there was a need for transformational change and a collective and urgent response to climate risks.
“There’s a lot to do and we are late in leaving port. Climate change is a risk that requires a collective response. Grounding a response in our collective knowledge, data and expertise will strengthen and compound the effects of our actions.”
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He said assessing risks to banks and insurers, and the financial system as a whole, was the Reserve Bank’s core business and climate risk would sit within that.
That would include the effect of drought and rising sea levels on the value of houses and farms.
“There are also risks associated with the transition to a low carbon economy, such as changing investor appetite and consumer demand.
“New Zealand being a small, island nation with an agricultural-based economy means we will be impacted differently than others. And thus, we must keep our preparations in tune with our environment and resources for our economy to prosper.”
Adrian Orr said assessing risks to banks and insurers, and the financial system as a whole, was the Reserve Bank’s core business and climate risk would sit within that.
He said while climate change posed a direct challenge to financial stability, the risks were difficult to identify, price, allocate and manage with accuracy.
”We will never have perfect information on the risks of climate change, but we do know that climate change holds far-reaching implications for New Zealand’s financial system. The environment and the economy are interdependent.”
“Ultimately disclosure by our companies in New Zealand under a commonly-adopted framework will support a shift to smarter investment in a low-emissions economy.”
The Reserve Bank developed a climate change strategy in 2018 to integrate climate considerations across its work.
It is now reporting on its own carbon footprint and is building its capability to understand climate change risks in the sectors it regulates as well as integrating it more extensively into its supervisory approach.