Shaw JamesHon JAMES SHAW (Minister of Climate Change): Thank you Mr Speaker. I rise most enthusiastically to support the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill. This bill has actually been quite a long time coming. Back when I was the modest Opposition climate change spokesperson and was invited by the Hon Tim Groser the Minister for climate change at the time to observe at the Paris climate talks I found myself sitting at the back of a room in which Mark Carney the Governor of the Bank of England and Michael Bloomberg of Bloomberg were launching their task force on climate-related financial disclosures. Neither of them are given to particularly flowery language—you could describe them as dry in their economic bent; very dry—yet some of the language that they used was actually quite extraordinary in the context that they were describing.One of things that they said was that they had formed the assessment that there are literally trillions of dollars of unquantified and undisclosed risk sitting on corporate balance sheets around the world related to climate change—trillions of dollars of unquantified risk sitting on corporate balance sheets—and that that represents a significant risk not just to those companies and not just to their shareholders but actually to the financial system itself. So their recommendation was for countries and businesses to move towards climate-related financial disclosures. Later on the Green Party made a request of the Hon Steven Joyce who was Minister for economic development at the time when he was putting together a Productivity Commission round of reports and we were delighted that he accepted our request for the Productivity Commission to do a report on the transition to a low-carbon economy.During the course of that process the Insurance Council made a submission to the Productivity Commission saying that if you looked at current reporting law the standard fiduciary duty of directors is to disclose material risk to their shareholders and of course the Insurance Council would know that there is significant material risk to businesses from things like sea level rise or increasingly frequent and severe droughts floods fires storms and so on. Yet even though you could interpret the fiduciary duty as therefore requiring companies to disclose climate-related risks they weren't. There were an absolute handful at the time who were making these kinds of disclosures. So their recommendation to the Productivity Commission got carried forward into a Productivity Commission recommendation and their report when it came out in 2008 was that the Government move to a mandatory complier-explain disclosure regime.Now what kind of risks are we talking about? The Hon David Clark who I thank for leading on this bill and bringing it to the House described two forms of risk one of which is what you would describe as physical risk. That's as I mentioned before things like floods fires droughts storms sea level rise and so on which could threaten the physical assets of a business. And having listened to this debate one of the things I want to note is that this isn't just about the emissions that a company produces. You could be a zero-emission business and still be at risk because your assets your business are at risk from those physical risks. So you could be an absolutely perfect player in terms of your own pollution that you put into the atmosphere but still be facing material risk. So that's one form of risk.The second form of risk is really stranded asset risk and that is where your emissions are significant. So what we know in kind of broad terms is that we are unable to burn 80 percent of the oil and gas reserves that are known around the world if we are to have any hope of staying within the 1.5 degree threshold for global warming. What that means is that the companies that own those reserves or have rights over those reserves and have valuations listed on stock markets based on the extracted processed and sold value of those reserves are facing potentially colossal write-downs in the value of their business because everybody knows they're not actually going to be able to extract and monetise those fossil fuel reserves. So that's the most obvious case of stranded asset risk but there are others as well.So this has wound its way since the Productivity Commission report. Chapman Tripp did a legal opinion which used in legalese quite strong language that actually the directors should have a duty to report on climate-related financial risk. Also Adrian Orr the Governor of the Reserve Bank weighed in because he shared the assessment with the Bank of England and other reserve banks around the world that non-disclosed climate-related risk actually could present a significant risk to the financial system itself and the stability of the financial system over which he obviously has some responsibility.So given all of that that is why we went and consulted in 2019—about 18 months ago—to say Shall we move to a mandatory complier regime system?" and 79 percent of the respondents to that the vast majority of which were either individual companies or industry associations supported a mandatory regime and 84 percent of them said that the international standard that's emerging from the task force on climate-related financial disclosures led by Mark Carney and Michael Bloomberg was the appropriate system to use for Aotearoa New Zealand. Why was that? I mean it's quite astonishing that you would have such massive support from the business sector for a new regulatory reporting regime and it's because they know that in order to get the efficient allocation of capital you need full transparency. You need everybody to be able to see everybody else's risk not just your own and if I as an individual company want to do the right thing and disclose the risks that I'm exposed to but one of my competitors is not reporting then I'm actually exposing myself to risk by the very act of reporting whereas if you have a mandatory regime that requires everyone to report everyone's cards are on the table and capital can be allocated according to the risk profile of the different businesses.The second thing is that there is a risk here that you would get competing reporting regimes proprietary to different accounting firms or different NGOs and so on and so it was felt that just as the generally accepted accounting principles that were raised by the Hon Michael Woodhouse before you need a set of standards here that apply equally so that we're comparing apples with apples rather than apples with oranges in all cases—to have as he said a taxonomy that everybody has agreed to.So that's why the business community was so supportive of a mandatory complier regime scheme using the Task Force on Climate-related Financial Disclosures as the basis with the external reporting board the XRB as the developer because of course that is their meat and potatoes—to develop reporting standards.There are a number of companies in Aotearoa New Zealand that have led the way on this. There are probably about a dozen that have produced some form of report in the past. I'll just draw on one so far which drew my attention although I want to acknowledge that there are others as well. Over this last summer Westpac produced their first climate risk financial disclosure statement and one of the things that they disclosed in that is that in their view about 2 percent of their mortgage book is exposed to climate risk. And that was new information to them. Now you might say 2 percent doesn't sound like much it's not a lot but if you know how the balance sheets of large banks operate if it gets to about 9 percent exposure they start to experience access-to-capital problems. So 2 percent is not actually that far away as presenting material risk. So you can see that that information actually then becomes extremely useful for them to start to be able to move forward.So New Zealand is the first country to introduce legislation which I'm delighted about but we're not the only one and we're not alone either. The United Kingdom have said that they are going to be moving fairly rapidly towards a mandatory regime—in fact they might even get there in legislation faster than we do apparently; it's what their goal is. The United States has just announced that they're considering it and there are something like 60 other countries around the world as well.So I'm delighted that we're able to do this. I want to thank the Hon Dr David Clark for taking this on and I do appreciate that bipartisan support that has so far been illustrated in the House for this bill."