So the Government has decided to make it mandatory for public listed companies, fund managers, banks and insurers to report the climate risks they face.
Announcing the policy in his capacity as Climate Change Minister — not co-leader of the Greens — James Shaw said many large New Zealandbusinesses did not have a good understanding of how climate change would impact on what they do.
If approved by Parliament, around 200 companies and other entities would have to make annual disclosures that identify the climate-related risks they face and their strategies for mitigating and managing those risks — or, if they are unable to comply, explain why not.
"What gets measured, gets managed and if businesses know how climate change will impact them in the future they can change and adopt low-carbon strategies," Shaw said.
"Covid-19 has highlighted how important it is that we plan for and manage systemic economic shocks and there is no greater risk than climate change."
The reporting requirements would be developed by the External Reporting Board, based on the international framework being developed by the Task Force on Climate-related Financial Disclosures.
That will take some time. Disclosures under the regime would be required by 2023 at the earliest, Shaw said.
Three kinds of risk are involved. First, the physical risks from climate change itself: more frequent and intense floods, droughts, forest fires and infestations of pests and, not least, sea level rise.
Second, there are the financial risks arising from carbon pricing and other measures policymakers take to mitigate the physical risks.
Third is the risk of assets being stranded by technological changes as people seize the opportunities that moving to a low-carbon future will afford.
"Australia, Canada, the United Kingdom, France, Japan and the European Union are all working towards some form of climate risk reporting for companies," Shaw said.
The International Monetary Fund, in its latest global financial stability report, warns that physical risks from climate change do not appear to be reflected in equity market valuations and calls for mandatory disclosure of material climate change risk.
The Reserve Bank, as regulator of the banks and insurance companies, backs mandatory reporting of what it sees as a risk to financial stability.
And Shaw said responses from companies to the discussion document the Government put out last October were surprisingly strongly supportive of mandatory reporting.
But unlike banks and insurers, the stock exchange intercepts relatively little of the economic life of the country.
The NZX argued that if private companies were not included, it could discourage listing and weaken New Zealand's capital markets. It said there were about 1200 larger private companies with revenue exceeding $30 million, compared with just 70 listed companies of the same size. Five of the top eight emitters of greenhouse gases were not listed, it said.
Private companies will not be captured by the disclosure regime. "While they have to have financial accounts they don't have to make them public, so at this stage we can't require them to comply," Shaw said.
Climate Change Minister James Shaw. Photo / Mark Mitchell
The National Party does not think mandatory is the way to go.
Its climate change spokesman Scott Simpson said, "My experience is, when we look at similar changes that apply to social licence, like health and safety, business does step up."
He cites firms' conforming to international standards promulgated by ISO, the International Organisation for Standardisation. Initial grumpiness about cost tended to yield when firms faced pressure from their major customers or suppliers, or from shareholders.
Far from being a competitive handicap, compliance with climate disclosure standards would be likely to provide a competitive advantage for firms in an increasingly climate-conscious environment, Simpson argues.
He also points out that those companies which are points of obligation under the emissions trading scheme already have to measure and account for their emissions.
And when it comes to drawing up detailed rules, defining who is in and who is out would be likely to prove contentious, he said.
That will also be true, in spades, when it comes to apportioning the costs of coping with climate change.
Part of the case for mandatory disclosure is to provide as much information as possible to the independent Climate Commission when recommending, and future governments when setting, carbon budgets en route to the statutory goal of net zero emissions of (long-lived) greenhouse gases by mid-century. That regime has been established by the Zero Carbon Act passed last year which National supported — over the objections of Judith Collins.
But that deals with the mitigation issue or how much New Zealand contributes to global warming.
There is also the increasingly pressing issue of adaptation. How much climate change New Zealand has to cope with will be determined by what happens in the other 99 per cent of the world.
And addressing that will require difficult decisions about where to draw the line where buyer beware ends and it becomes appropriate to socialise the costs of adaptation, whether by the state or local government or by private sector financial institutions in the business of pooling risk. Where does caveat emptor end and moral hazard begin?
The climate risks which banks and insurers will have to report will include the aggregate effects on their balance sheets of climatic risks to individual properties they insure or have mortgages over.
And there's the rub. Ultimately, Parliament will have to turn its mind — most likely in a Climate Adaptation Act which the Randerson review of the Resource Management Act recommends as one successor to that act — to the vexed issue of including climate-related hazards on the land information memoranda (LIMs) councils are required to issue.
It is when climate risk disclosure reaches that level, and affects the availability of insurance and mortgages, that people will really pay attention.
Or as Granny used to say: "Don't care? Don't care was made to care."
