Recently I attended the Responsible Investment Association Australasia (RIAA) conference – RI Aotearoa New Zealand 2021. AMP Capital has long been a key sponsor of this event and it is encouraging to see how much responsible investment has evolved over time. Interest in this form of investment has now grown to the point where responsible investing is “the new normal” and a foundation of good investment practice.
One of the key themes driving responsible investment is climate change which is increasingly seen as one of the most significant issues faced by organisations today. Financial markets globally can play a major part in shifting investment away from emission-intensive activities and towards a low-emissions, low-carbon economy. However, this transition requires the disclosure of consistent, reliable and clear information about climate-related risks and opportunities.
New Zealand is leading the charge and looks set to become the first country in the world to make climate-related risk reporting compulsory for the financial sector.
The Government has introduced legislation requiring banks, insurers and investment managers to report on the climate impacts of their businesses and explain how they will manage risks. This legislation is due to become law later this year and will ensure that financial organisations disclose and ultimately take action against climate-related risks and opportunities.
Reporting will be based on the Task Force on Climate-related Financial Disclosures (TCFD) framework, which is widely acknowledged as international best practice for climate-related financial reporting. The goal is to ensure that the effects of climate change are routinely considered in business, investment, lending and insurance underwriting decisions, and help climate reporting entities better demonstrate responsibility and foresight in their consideration of climate issues.
As a registered investment scheme manager, AMP Capital will be required to make disclosures on a fund-by-fund basis. I support this mandatory reporting as it will ensure investors receive the information needed to understand the both the risk and opportunities associated with climate change and on the future performance of their investment.
While the new mandatory disclosure regime will place a further reporting onus on the financial sector in New Zealand, overall it will help investors, shareholders and companies to assess climate-related risks and opportunities and make more informed decisions. Having a better understanding of these risks and opportunities will allow investment managers to make better informed investment decisions and will lead to more in-depth engagement with management and boards. Mandatory reporting of climate-related disclosures will also help New Zealand meet its international obligations towards achieving a target of net zero carbon by 2050.
At the same time, companies that are better prepared for climate risks and opportunities and transparently disclose this information will be inherently more attractive to investors. This will lead to more efficient allocation of capital and so help smooth the transition to a more sustainable, low-emissions economy.
When thinking about climate change, we often just think about the impact that our business is having on the climate and not necessarily the impact climate change will have on us. In reality, climate change presents real financial risks to the global economy, in both physical and transitionary aspects, and the TCFD framework is asking us to identify and prepare for the impacts that the climate will have on our business.
AMP Capital is already committed to managing our business and clients’ investments toward achieving net zero carbon emissions by 2050 or sooner in alignment with The Paris Agreement1. Our firmwide ‘Position on Climate Change’ supports the TCFD recommendations and recognises the transition to a low carbon economy. You can read more about AMP Capital’s Position on Climate Change further here.
1 The Paris Agreement (2015) is a binding international treaty adopted by 196 Parties at UNFCCC / COP 21 which seeks to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.
This blog post has been prepared to provide general information and does not constitute financial advice in accordance with the Financial Markets Conduct Act 2013. An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.