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•  in banking, following BNZ’s lending changes.
• Experts say the bill may not prevent banks from considering climate risks and could raise borrowing costs.
• requires lending decisions to be commercial, but lawyers argue it’s likely unworkable due to climate-related risks.

By Eloise Gibson of 

A NZ First bill promises to , after BNZ decided to pull back its lending to petrol stations.

But lawyers and financial experts say the proposed law would not stop banks considering climate risks – and might raise the cost of borrowing.

The move comes after  or in Deputy Prime Minister Winston Peters' words “ideologies being driven by unelected, globalist, climate radicals”.

Federated Farmers has long criticised banks for reducing their exposure to fossil fuels and setting climate targets and incentives for farmers, including during a select committee inquiry into bank profits.

Now the debate is heading to Parliament, with a bill by MP Andy Foster going for its first reading.

The bill would require decisions on who to lend to be made on a commercial basis.

Deloitte Asia Pacific sustainability and climate leader Will Symons says he has seen no evidence that business decisions are being driven by non-commercial factors, according to company chief financial officers (CFOs) he talked to.

“I spend a lot of time with CFOs, in fact I had a meeting with a group of them this morning on this exact topic. My own personal interaction with CFOs wouldn’t suggest they make decisions based on a woke agenda,” he said.

“If you come back to the fundamentals, New Zealand has signed a legally binding treaty to decarbonise its economy, it is committed to net zero by 2050 and of course business is responsive to signals from government.

“The second thing I would say is that wind and solar is outcompeting coal and is doing so globally.”

 in the United States saw some financial firms pull out of climate accords and other sustainability initiatives, such as the Net Zero Banking Alliance.

But Symons questioned whether that would change their underlying lending.

“Starting with the US situation, what we know from experience is there’s a lot of noise. It becomes a very noisy environment with the Trump administration, it’s a very quick media cycle, there’s a lot of statements that don’t necessarily flow to action,” he said.

“What we need to focus on is what actually happens.

“The big area that’s material [for our clients] is that the risk/reward equation in terms of public disclosures has shifted fundamentally in the last six weeks, and so what we’re seeing is that many of our clients are being very cautious about what they say externally about anything that relates to sustainability.

“But what we’re also hearing from our clients is that actually their strategies haven’t changed.

“And that’s what you’d expect, because the reasons why our clients have integrated strategic consideration of sustainability into their core strategy... haven’t changed.

“Those reasons are their stakeholders expect transparent disclosure [of emissions and climate risks] ....cleaner energy is generally cheaper than fossil fuel-powered energy, and the physical effects of climate change are already affecting the balance sheets of our clients.”

Symons said companies in countries like New Zealand would have to keep calculating the risks climate change posed to their balance sheets, if they wanted access to well-priced capital. That was because global investors saw climate risk as financial risk.

DLA Piper banking and financial lawyer Daniel Street said the global situation was messy, with some countries easing up on climate regulations while others forged ahead.

But he said as an exporting nation, New Zealand could not afford to start ignoring climate risk in business decisions.

Street said some US-based firms who had pulled out of accords like the Net Zero Banking Alliance had often done so because they feared being sued for collusion by the Trump administration, not because they had changed their approaches to climate risk.

“The true test will be whether or not you actually see a change in the underlying or investment decisions by those organisations. Because for many of those organisations, their concern is litigation or reputational risks, it’s not that they’re making a different assessment of the financial risk.”

He said New Zealand banks were making their own assessments of businesses whose assets might drop in value as economies cut emissions, or whose businesses were exposed to increasing disasters.

“As we’ve seen from three of our largest banks at the parliamentary select committee inquiry hearing, they all made the point that they are making these decisions not for some kind of virtue signalling, but because they have views on the future financial position of particular sectors of the economy or particular businesses.”

Street said if banks stopped factoring in emissions or sea level rise, farmers wouldn’t be able to ignore them. That was because the best-paying customers for dairy exports, such as Nestle, had their own climate targets.

‘Verifiable commercial reasons’

If enacted, the bill would mean any withdrawal of banking services would need to be made on a purely commercial basis or banks face fines of up to half a million dollars.

Lawyers at Russell McVeagh and Chapman Tripp have called it likely unworkable in its current form because climate change does pose commercial risks.

Martien Lubberink, an associate professor of accounting and capital at Victoria University in Wellington, said it was an open question how such a law would fare in court.

“Banks study this and they have smart people to price these risks. I wonder how it would stand up in court, because if you look at the law firms whos have commented, they say it’s unworkable, because in legal terms it’s very hard to work out what’s verifiable [risk] or not, particularly when it concerns the future.”

He said passing the bill could raise the cost of borrowing by increasing risk and uncertainty.

“If you require a bank to keep investing in, say petrol stations but the bank expects petrol to be phased out in say the next decade, you impose loss-making industries on banks.”

National has not said if it will support the bill past its first reading.