Oral Submission on the Financial Markets (Conduct of Institutions) (Duty to Provide Financial Services) Amendment Bill
By Gareth Hughes and Paul Dalziel
Kia ora ngā mihi nui kia koutou kia ora.
We welcome the chance to make a submission.
Finance is a key part of a healthy economy and it’s important we allow finance to work in the service to the future.
There is now widespread recognition that climate change is a huge financial risk - both in terms of extreme weather events and the risks of dealing with the low carbon transition.
One report I work urge you to read is Institute and Faculty of Actuaries Current climate policies risk catastrophic societal and economic impacts report that estimates the global economy could face a 50% loss in GDP between 2070 and 2090 unless immediate policy action on risks posed by the climate crisis is taken.
We need to get our finance system working in the interest of the public good and future generations.
WEAll’s Research Economist Paul Dalziel will make our substantive points
E ngā rangatira mā, kia ora tātou katoa i tēnei Wiki o te Reo Māori.
Let me begin with four statements I think will find agreement around this table.
First, financial institutions make irreplaceable contributions to the wellbeing of New Zealanders. Young people saving for their first home. Workers saving for their retirement. Small businesses accessing loans to finance expansion. New Zealand require well-functioning financial institutions at all stages of our lives.
Second, a key requirement for a healthy financial institution is that its carefully designed internal systems and its skilled staff are able to analyse and manage risk, not only for each individual loan application but also for their total portfolio of loans.
Third, in their day-to-day business, financial institutions have found connections between certain features in a loan application and the risk of failure in a business project. These include what can be called for convenience environmental, social, or governance considerations.
Fourth, the External Reporting Board publishes standards to create “a consistent framework for entities to consider the climate-related risks and climate-related opportunities that climate change presents for their activities over the short, medium and long term” (NZ CS 1, paragraph 1).
Now I come to a difference around the table. Globally, the development of these tools and standards to evaluate and manage risk is regarded as a good thing, directly contribution to the wellbeing of citizens who need their savings to be invested wisely.
This Bill, however, contains clauses that prohibit certain considerations in the providing financial services to different consumers. These include “any direct or indirect environmental, social, or governance consideration”. and “any climate-related reporting standard issued by the External Reporting Board”.
These clauses would deny to New Zealand institutions a standard practice available in other jurisdictions, to the detriment of the financial returns to New Zealand savers.
There are exemptions, but the Bill provides no guidance on what is considered to be a valid commercial reason, and it provides no standard for evaluating whether a commercial reason is verifiable. Consequently, this intrusion on the day-to-day practice of financial institutions must increase the costs of financial intermediation.
I finish with an analogy. Suppose I asked a mechanic to service my car. Suppose when I picked the car up, the mechanic said the service was complete, but when he tested the engine, the overheating warning light lit up on the dashboard. He knew this would annoy me, so he disconnected the warning light.
This is what this Bill requires financial institutions to do – to disconnect the warning lights that might come on in a standard ESG evaluation. WEAll therefore recommends that the Select Committee report back to Parliament that this Bill should not proceed.
About WEAll Aotearoa
WEAll Aotearoa is a non-partisan and independent ‘think and do’ tank working to redesign Aotearoa New Zealand’s economy around the wellbeing of our people and te taiao.
We use an evidence-informed approach and think upstream to develop practical, long-term solutions for the public good.
We formed three years ago and have recently published reports on Amplifying Māori Approaches and 100 policies for the public good for local government.
We are part of the global Wellbeing Economy Alliance - one of 17 national organizations around the world.
A wellbeing economy puts our human and planetary needs at the centre of its activities, ensuring that these needs are all equally met, by design. WEAll’s ambassadors include Kate Raworth, author of Doughnut Economics; Wales’ first Future Generations Commissioner Sophie Howe; Tim Jackson, Jason Hickel, Katehrine Trebeck and many others.
