Back in October, the Ministry for the Environment announced plans to make climate change-related disclosures a legal requirement for businesses in New Zealand – a proposal supported by the Insurance Council of New Zealand (ICNZ), which has suggested that such disclosures should indeed be mandatory.
The Task-Force on Climate-related Financial Disclosures (TCFD) framework is already being followed by a number of other countries including the UK, Japan and Australia, and Climate Change Minister James Shaw has stressed that New Zealand needs to be “in step” with these international trends.
According to Rowan Douglas, head of capital science and policy practice at Willis Towers Watson, this proposal pins New Zealand as a global leader in building a sustainable financial sector, and in assessing, disclosing and taking action on climate change risk.
“I always think that New Zealand has the most progressive public policy conversation around insurance institutions and society in the world,” Douglas said.
“This conversation is happening in this country in a far more sophisticated way than in most others.”
“I recently read the proposal that was released by Mr Faafoi and Mr Shaw on climate risk disclosure for all insurers, banks and asset managers in New Zealand by 2021,” he continued.
“We’re having a debate around the implications of risk-based pricing for insurers, and what will happen in 2021 is extremely significant – it will represent the risk-based pricing not for insurance coverage, but for the cost of capital. Climate risk will be an input to credit risk, and it will make the debate around risk-based pricing for insurance seem like a sideshow.”
Douglas says that whether you’re in the UK or in New Zealand, both countries are suffering from a climate ‘sickness’ that needs to be addressed. He says that a better awareness and understanding of risk, pricing and how the two work together is a vital step to securing a sustainable, resilient future.
“It’s not just a course of palliative care, but a move to get better,” he explained. “I think New Zealand will be first in line to be a great exporter of risk through remarkable reinsurance coverage, but also the country that exports the model of resilience. What that will do for this country’s brand is absolutely remarkable.”
However, Douglas says that there is one aspect the proposal did not touch on – and that’s on the methods, tools and industrial infrastructure that will be needed in order to properly understand and disclose risk. He says that whatever happens over the next three years, insurance will be a vital part of driving it forward.
“The way ICNZ and the wider groups around the country have taken on this challenge in such a bold way is remarkable, and if that proposal goes forward, then the missing element of Mr Faafoi and Mr Shaw’s consultation will be filled,” Douglas said.
“This country will change over the next three years, and insurance will be at the heart of it. This isn’t so much about risk management, it’s about resilience and growth. Once risk is disclosed, it cannot be ignored – and that is the biggest opportunity for our industry that we will see in our careers, and likely in our lifetimes.”
Karen Silk, Westpac acting GM for the Experience Hub also says the TCFD disclosure is a necessary step – however, she says businesses should not be waiting for it to become mandatory before adopting its methods.
Westpac is currently one of the organisations using the TCFD process voluntarily.
“If we wait for something to become mandatory, we will have the ‘compliance mindset’,” she said.
“As an organisation that is trying to use TCFD today, we are using it to access data and understand what our risk is, and that’s really important.”
“We also need a consistency in understanding what the appropriate standards are, because otherwise, we can’t assess the quality of what is being done,” she added. “In New Zealand, it’s really important that those align with those international standards.”
