RB to test for climate stress

The Reserve Bank is ramping up its climate stress testing to gauge how well New Zealand’s banks and insurance companies could withstand shocks from droughts, floods and export disruption.

A combination of worsening droughts, tariffs and changing appetites for food could see farmers at risk of defaulting on loans if they all hit at once, according to a report out today.

Meanwhile, on the coasts and rivers, insurance companies could withdraw protection from floodprone houses, leaving banks at higher risk from exposure to mortgages on uninsured properties.

The central bank’s climate change report – released yesterday – said it is embarking on an 18-month programme to devise a full climate stress test for financial industries, which it aims to launch in 2023. It also published its own carbon footprint for its two offices and 470 staff, as well as the goods and services it buys – a tally of just more than 10,000 tonnes of emissions for 2020-21. That was down 10 per cent on 2019-20, mainly because of staff doing less business travel due to of Covid-19.

Because the Reserve Bank is responsible for helping to secure a stable financial system, it is concerned about anything that could affect the bottom lines of the banks and insurers it regulates – including climate change. Both climate impacts, and efforts to stop them by cutting emissions, pose risks to those companies.