The Government of New Zealand has passed a law that requires financial institutions to disclose and subsequently act on climate-related risks and opportunities.

The island nation is said to be the first country in the world to green light such legislation.

In a statement, the government said: “The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill has now passed its third reading.

“Once in effect, it is expected to make a significant contribution to New Zealand achieving carbon neutrality by 2050.”

The bill mandates around 200 of the largest financial firms including banks, insurers and investment managers to make disclosures.

It will include information on risks and opportunities that the climate change presents to their businesses.

The financial institutions will be required to provide the disclosures from the financial years beginning in 2023. It is subject to the publication of climate standards from New Zealand’s independent accounting standard setter the External Reporting Board (XRB).

Notably, the legislation is one of the initiatives that the government has taken to meet its international obligations and achieve 2050 emissions targets.

New Zealand Climate Change Minister James Shaw said: “Climate-related disclosures will bring climate risks and resilience into the heart of financial and business decision making. It will encourage entities to become more sustainable by factoring the short, medium, and long-term effects of climate change into their business decisions.

“New Zealand is a world-leader in this area and the first country in the world to introduce mandatory climate-related reporting for the financial sector. We have an opportunity to pave the way for other countries to make climate-related disclosures mandatory.”

Earlier this year, the Reserve Bank of New Zealand (RBNZ) said that it is considering adding climate change into its stress testing for banks and insurers.