RBNZ looks to green its balance sheet

October 26, 2021|Written by David Clarke|Te Pūtea Matua / Reserve Bank of New Zealand, Bank of England, European Central Bank

The Reserve Bank of New Zealand (RBNZ) has said it will review its bond portfolio, and the assets it accepts as collateral against its lending to banks, in light of climate concerns.

“We aim to incorporate our sustainability goals in our balance sheet decisions, to support the transition to a low emission, climate-resilient economy and the development of a sustainable finance market in New Zealand.” says a climate plan published by the reserve bank on Tuesday.

The RBNZ is also developing fresh guidance to support the government’s introduction of mandatory climate-related disclosure. Earlier this month, New Zealand became the first country to make climate reporting a legal requirement for banks and other large firms.

A system-wide stress test is on the horizon, with RBNZ stating it is “learning ways” to further incorporate the risks of climate change into its bank stress testing, while improving capability.

“The plan is to build up gradually over the next 18 months to a full climate change scenario-based industry stress test,” the report says.

Although the report acknowledges the uncertainty over banks’ ability to mitigate the transition of climate risk to the financial system, it makes no consideration of calibrating macroprudential policy instruments such as capital requirements to ensure climate risks are more accurately reflected.

RBNZ’s bond holdings are currently weighted towards high-emissions countries like Australia and Canada, prompting unease over its outsized exposure to climate risks. Australia was one of the last G20 countries to announce a pledge to reach net-zero emissions, and concerns remain over the lack of detail in its plans.

In a press conference accompanying the launch of the report, governor Adrian Orr said RBNZ gets higher yields from Australian and Canadian bonds, and would have to consider how to maintain a balanced portfolio while reducing its carbon footprint.

RBNZ follows the European Central Bank and Bank of England (BoE) in considering how climate considerations can be factored into collateral and asset purchases. The BoE said in May it would set targets for the overall emissions of its holdings.

This page was last updated October 26, 2021

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