Context
New Zealand has become the first country to pass laws requiring banks, insurers, and investment managers to report the impacts of climate change on their businesses.
What is in the new law?
- The new law will require financial firms to define how to manage climate risks and opportunities, and the disclosure requirements will be based on standards from the New Zealand independent Accounting body.
- The law will force financial firms to not only assess their investment but also to assess the companies to which they lend money, in terms of their environmental impact.
- Disclosure will be compulsory in the financial year beginning 2023.
- The New Zealand government has introduced a number of policies to reduce emissions, including the promise to make it’s public sector-neutral by 2025 and buy only zero-emissions public transport buses from the middle of this decade.
Significance
- It will ensure that financial organizations disclose and ultimately take measures that affect climate risks and opportunities.
- With climate reporting open, investors will see how the company they plan to invest in, has an impact on the environment.
- It would also be possible for financial institutions to reconsider their decisions, and to reflect on the impact of the real-world impact caused.
- This law will bring about climate risks and resilience in the heart of financial and business decision-making.
Need of this Law for India
- With stock exchanges such as the Bombay Stock Exchange (BSE) reaching a market capitalization of USD 2.8 trillion, having a measure to help make Indian organizations more environmentally friendly could create a huge impact.
- But for this initiative to be successful in India, it will have to be more comprehensive, considering the size of the nation and the number of businesses that exist.
Related Initiatives
- Network for Greening the Financial System (NGFS): It is a global network of central banks and supervisory authorities advocating a more sustainable financial system.
- Task Force on Climate-related Financial Disclosures (TFCD): TFCD was created in 2015 by the Financial Stability Board (FSB) to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders.
