The explicit inclusion of environmental and social considerations in fiduciary duty, the introduction of a stewardship code and enhanced regulatory action to guard against greenwashing are among the raft of recommendations made by New Zealand’s Sustainable Finance Forum (SSF) in its final report, Road Map for Action, which was published this week.
The forum, which is co-chaired by the CEO of New Zealand’s NZ$38bn ($25.7bn) sovereign wealth fund, Matt Whineray, mirrors similar initiatives in Europe, Canada, Japan, Germany and elsewhere; tasking national regulators, ministries, insurers, investors, banks, civil society and lawyers to develop a sustainable finance roadmap for the country.
It was launched in early 2019 as part of a wider partnership between the Jacinda Ardern-led government and the country’s private sector, known as the Aotearoa Circle. Aotearoa is the Māori name for the country.
“Financial markets and systems, both globally and in Aotearoa New Zealand, are largely still misaligned with the climate change crisis and with other environmental and social issues” – New Zealand’s Sustainable Finance Forum
The inclusion of environmental and social factors within fiduciary duties is regarded by the SSF as a “wave one” recommendation, that is, “ an immediate action, which financial system actors and/or Government are able to commence immediately”.
Last year, on the SFF’s advice, the Aotearoa Circle sought a formal legal opinion on the role of climate risk within fiduciary duty. It stated that fund managers “must” take climate change into account when making investment decisions.
The SFF are now calling for a “supplementary legal opinion(s) on current obligations of other financial system actors in respect of climate change (e.g. trustees), and then obligations of all financial system actors in respect of ESG more broadly.”
Following this, SFF recommends that environmental and social factors be included in “applicable fiduciary duty legislation”.
Another “priority area” recommendation is that New Zealand introduce its own Stewardship Code for financial institutions, based on international best practice, particularly the UK’s 2020 updated code.
SFF suggests that in the longer-term, adoption of the Code could become a licencing requirement for default providers of the country’s ‘opt-in’ retirement provision, KiwiSavers, which manage an estimated NZ$57bn (€32bn) in workers’ savings.
“Sustainable standards” – both social and environmental – should also be created, the SFF recommends, for the “purposes of providing objective definitions of sustainable activities in Aotearoa New Zealand for investment, lending and insurance”.
The group also calls on the country’s regulator, the Financial Markets Authority, to “provide stronger regulatory oversight on the use of sustainability and responsible investment standards, to ensure ‘greenwashing’ and misleading claims made by corporates and funds (in relation to financial products) are eliminated”.
The Reserve Bank of New Zealand is called upon to set expectations around “incorporating climate risk assessment into bank and insurer risk management practices and disclosures”.
New Zealand’s central bank should also “investigate the relationship between sustainable lending practices and longer-term risk reduction”, the SFF suggests.
Earlier this year, New Zealand announced plans to become the first country to introduce mandatory climate-risk reporting for banks and insurers based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.