Adrian Orr to step up conversations on climate change

Weather-related insurance payouts are on track to hit a new record high this year, Reserve Bank Governor Adrian Orr said.

BRADEN FASTER / TRICK

Weather-related insurance payouts are on track to hit a new record high this year, Reserve Bank Governor Adrian Orr said.

Reserve Bank Governor Adrian Orr said the bank will increase the number of conversations about climate change in the coming year.

The impacts of climate change were “already there, and those impacts are growing”, he told a conference in Auckland on Monday.

“The past few months have seen no shortage of extreme weather events linked to climate change across the globe, with record high temperatures and droughts.

“Here in New Zealand, last year set a new record for weather-related insurance payments and this year is on course to break the record,” he said.

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In July, former Reserve Bank Governor Graeme Wheeler and New Zealand Initiative researcher Bryce Wilkinson questioned central banks’ interest in climate change policy, suggesting that it was outside their areas of expertise and responsibility.

They also accused the Reserve Bank of being distracted by “a Maori worldview” of its operations.

But Orr said the bank could “reduce the impacts of climate change on Aotearoa’s financial system”.

“Assessing material risks for banks and insurers, and the financial system as an ecosystem, is our core business,” he said.

“To achieve our objective of financial stability, it is important for us to take into account the current and future impacts of climate change.

ROBERT KITCHIN/STUFF

Reserve Bank Governor Adrian Orr speaks with Stuff a day after raising the OCR.

Orr said the Reserve Bank had introduced an “element of climate change risk” into its annual solvency test of the financial system last year, by including a two-year drought in the North Island in its modeling of climate change. catastrophes and conducting its first stress test of the insurance sector. .

“This year’s exercises will strengthen our own and industry’s capabilities and inform our climate scenario stress test next year,” he said.

The Reserve Bank was also working on the draft text of a “guidance note on managing climate change risks” for businesses it regulates, including banks, he said.

From next year, around 200 of New Zealand’s largest companies will be required to report annually on the climate-related risks they face.

“The next 12 months will see an increase in conversations with entities as we deepen our understanding of the prudential implications of climate change,” Orr said.

“We will discuss the responsibilities, oversight and implementation of entities’ climate strategies and risk management, as well as the practical steps they are taking to mandate climate-related disclosures.”

Geof Mortlock, a financial services consultant and former senior Reserve Bank executive who also criticized the bank under Orr, said he had no problem with the Reserve Bank given the climate change risks in its role supervision.

That was as long as it took a tunnel vision “rooted in financial stability which is the role of the central bank”, he said.

“What I would worry about is what Orr didn’t say, but what they could do, which is to use macroprudential policy tools to try to channel bank lending to industries that have near-zero emissions.

“That would be starting to micro-manage the way banks make their lending decisions and that’s not the role of the central bank.”

Mortlock said he wasn’t sure if that was the Reserve Bank’s intention, but said it had shown a tendency to micromanage in other areas.

“I’m just worried that they’re a bit unguided in some ways,” he said.