Industry survey on climate-related risk management and disclosure

This bulletin article highlights the high level results from a survey of prudentially regulated entities on climate change. The impacts of climate change are already evident, continuing to raise concern regarding the future implications of climate-related risks for the financial system. The Reserve Bank of New Zealand is the prudential regulator and supervisor of banks, insurers and other financial institutions and has the function of monitoring the financial system. To ensure that we perform these functions consistently with our financial stability objective, it is important for us to take account of the current and future impacts of climate change. This includes within our supervisory approach. Following an initial industry self-assessment survey on climate-related risk management and disclosure in 2019, we conducted a second survey in Q2 2023. The main purposes of this survey were to understand participating entities’ progress in identifying, measuring, and managing climate-related risks, along with their preparedness for meeting the mandatory Aotearoa New Zealand Climate Standards disclosure regime ahead of the first statements to be published in early 2024. The survey was voluntary to complete and sent to every prudentially regulated entity that is subject to the aforementioned disclosure regime; 41 in total1. 29 survey responses are included in the analysis. Major findings from the survey - No entity stated it is ‘not at all’ vulnerable to climate-related risks, assuming no mitigating actions are taken; 26 were at least ‘somewhat vulnerable’ with the other 3 were ‘unsure’. - Entities view climate change as already compounding a range of business risks and expect this will increase in the future. - Almost all entities’ governance bodies are discussing climate-related risks on a regular or ad hoc basis (28 out of 29). - Concerns about climate-related risks are influencing day-to-day business decisions more than they were when we conducted our inaugural survey in 2019.2 However, only 3 out of 29 entities stated they have ‘fully embedded’ different aspects of climate-related risk management in the manner they already do for other business risks. - Just over half of the entities (16 out of 29) have not yet undertaken climate-related scenario analysis, albeit all plan to do so in the next 12 months. - No entity assessed itself as ‘at risk for not meeting’ the new disclosure regime. However, most entities (25 out of 29) need to complete ‘significant further work’ as they prepare their inaugural climate statements. The findings from this survey will help inform further work across the sector from both industry and regulators regarding the management and disclosure of climate-related risks.