The Reserve Bank of New Zealand (RBNZ) is considering adding climate change into its stress testing for banks and insurers.

In an opinion piece published on the bank’s website, Reserve Bank assistant governor Simone Robbers said that it is exploring ways to incorporate climate change into the stress testing.

The piece added that the 2021 stress test plan includes drought conditions in a bank stress test scenario. For insurance sector, it includes severe weather events.

Robbers said: “While we are pleased with our progress, we all need to do more and move with pace. Although it will take time and effort, we are committed, alongside the government and other financial regulators globally.

“Confronting climate change requires a holistic and global response and we will be much more effective if we are all pulling in the same direction.”

The comment comes at a time when the impact of climate change on the economy and financial system is becoming more prominent.

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Last year, RBNZ collaborated with New Zealand’s Financial Markets Authority to upskill its supervisors on climate risks and climate-related financial disclosures.

It has also started working on an emissions reduction plan. The central bank reported its verified carbon footprint for the first time in 2020.

In June, RBNZ published the finalised bank capital adequacy requirements. The new requirements increased the amount of capital that the banks must hold to make banking system safer.