Our Submission on the Woke Banks Bill

Parliament’s Finance and Expenditure Committee is currently considering the Financial Markets (Conduct of Institutions) Amendment (Duty to Provide Financial Services) Amendment Bill (the colloquially named Woke Banks Bill). 

The Bill aims to prevent banks from “debanking” or withdrawing banking services from consumers on “murky ‘environmental, social or governance’ moralising”. 

We have written a submission strongly opposing the Bill. This bill is misguided, would add unnecessary red tape and litigation risk for banks and insurers, and would be a harmful legislative overreach. 

At a time when many of our key export partners are actively supporting their financial sectors to support the transition to net-zero, it would be a remarkable backwards step for New Zealand to introduce a Bill that does the opposite. 

What the Bill would do

The proposed s 446JA would impose a blanket duty on every “financial institution” to “not treat any consumer less favourably in the provision of financial services than would otherwise be the case” for four reasons, including “any direct or indirect environmental, social, or governance consideration”. 

The only exceptions are where a financial institution can point to a “valid and verifiable commercial reason”, or “as required or permitted by any other enactment”. 

A breach risks conviction and a hefty $500,000 fine. 

Climate risk is a commercial risk

The Bill rests on a faulty premise: that environmental, social and governance (ESG) factors are moral preferences and judgements, rather than legitimate commercial risks. This is at odds with the growing international recognition that climate change risks are commercial risks. For example:

• Physical risks—flood-damaged assets, storm-hit supply chains, coastal infrastructure;

• Transition risks—stranded fossil assets, legal liabilities, reputational damage.

As the Parliamentary Commissioner for the Environment has put it, “the physical risks posed by climate change are certain—it’s just a matter of degree.”

This Bill is an attack by the Government on the commercial judgement of financial institutions. It would result in increased uncertainty and litigation risk over whether ESG risks fall within the vaguely termed exception - “valid and verifiable commercial reason”. It will create a chilling effect on lending and add significant red tape for financial institutions

Need for consistent and stable climate policy

An effective shift to a low-emissions economy requires the Government to set consistent, predictable legal frameworks that support the financial sector to play its role in achieving net-zero.

However, this Bill creates a strange double standard with the climate-related disclosures regime - sending conflicting signals to the market. On the one hand, institutions will continue to be required to identify and disclose how they are managing risks under New Zealand’s world-first climate-related disclosures regime. On the other hand, they will now have to justify how they respond to those same identified risks on the basis of “commercial reasons”. 

Consumers end up with higher costs

The Bill would ultimately harm consumers. It would disincentivise and make it harder for financial institutions to price risk accurately.  In practice, this means consumers, whether homeowners seeking a mortgage or small businesses seeking credit, could end up shouldering higher premiums and interest rates to subsidise borrowers with poor climate resilience or weak governance.

Flawed drafting

The Bill is poorly drafted. From a climate lens, two points are particularly worth noting. 

First, while its stated objective is to “prevent registered banks [from] debanking” services from New Zealanders, the current drafting of the Bill captures a far wider range of actors and services than banks alone. 

For example, it likely captures registered insurers. But this Bill is an entirely inappropriate forum for dealing with the complex risks that climate change presents for the insurance sector.

Second, the Bill captures activities far beyond “debanking” - with clause 446JA(1)(b) requiring financial institutions to not “treat any customer less favourably in the provision of financial services”. This could create a raft of potential unintended consequences. 

Take ASB’s recent loan designed to help farmers install on-farm solar as an example. Research from ASB and Rewiring Aotearoa shows that two-thirds of farmers want to electrify. However, under the Bill, that targeted product could be attacked as “less favourable” to non-farmers on both industry and environmental grounds. The Bill would add a layer of bureaucracy and create a chilling effect for financial institutions like ASB who want to respond to consumer demand and help industries transition to lower-emissions alternatives.  

The climate context

Climate change is here and now. Even if climate risks are distinct from commercial risks (which in the vast majority of cases they won’t be), New Zealand businesses cannot ignore climate change.

Near-term actions to shift the financial system over the next decade are critically important and possible. As the IPCC has found, taking into account the inertia of the financial system as well as the magnitude of the challenge to align financial flows with long-term climate goals, fast action is required to ensure the financial sector is ready to enable the transition. 

This Bill would undermine and complicate the ability of New Zealand financial institutions to do so.

As the Parliamentary Commissioner for the Environment has stated, “Banking is all about gauging and managing risks. And if an industry like petrol retailing is in decline, that’s a risk banks can’t and shouldn’t ignore”.