RBNZ Releases 'Too Little, Too Late' Climate Stress Test Scenario
The Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) has published the stress test scenario that our largest banks are using to test their ability to withstand severe, but plausible long-term climate-related challenges.
Deputy Governor Christian Hawkesby says each year we run stress tests to assess banks’ resilience, making sure they have enough capital to withstand severe shocks, while being able to continue supporting the economy. In the case of the climate stress test, the main purpose is to improve banks’ capability to manage climate-related risks.
“Climate change is already impacting the global economy and the risks are expected to intensify. The severe weather events in the North Island this year are examples of climate change playing out locally. Globally we are seeing the extreme climate crises other countries are dealing with,” Mr Hawkesby says.
“As kaitiaki of Aotearoa’s financial system, we have a role to play in helping the financial industry prepare for the growing physical and transition risks that climate change poses, and that’s what this stress test scenario aims to do."
“We appreciate banks’ willingness to participate in the climate stress test and look forward to collectively building our understanding of how climate risks may playout in the banking sector and building the capability to manage those risks.”
The 2023 scenario, titled ‘Too Little Too Late’ was developed in consultation with the participating banks – ANZ, ASB, BNZ, KiwiBank and Westpac - and climate experts. It is based on core components of scenarios developed by the Network for Greening the Financial System, plus New Zealand specific elements. Banks have until the end of this year to determine their exposure to climate-related risks by modelling the effects of the scenario on their balance sheets out to 2050. We will publish an aggregate report on how the banks performed next year.
While work by participating banks is progressing, non-participating banks and other financial institutions may find the scenario helpful as they consider and develop their own responses to climate risks.