New Zealand has become the first country in the world to pass a law forcing financial institutions to disclose and, the government says, act on climate-related risks and opportunities.

“We have an opportunity to pave the way for other countries to make climate-related disclosures mandatory,” climate change minister James Shaw said. “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.”

The new rules will apply to large insurers, banks, publicly listed companies, listed issuers and investment managers. At present, most of these large New Zealand entities provide little information on what the climate crisis and global heating might mean for their future operations. By forcing them to disclose that, the law hopes to ensure the effects of the climate crisis are constantly considered in business, investment, lending and insurance underwriting decisions.

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

“This bill will require around 200 of the largest financial market participants in New Zealand to disclose clear, comparable and consistent information about the risks, and opportunities, climate change presents to their business. In doing so, it will promote business certainty, raise expectations, accelerate progress and create a level playing field,” commerce and consumer affairs minister David Clark said in a statement after the bill passed its third reading on Thursday.

James Shaw said the legislation was one of a number of actions the government is taking to meet its 2050 emissions targets required by the Climate Change Response Act 2002. So far, New Zealand has done very poorly on meeting its climate goals.

The country is one of the world’s worst performers on emission increases. Its emissions rose by 57% between 1990 and 2018 – the second greatest increase of all industrialised countries. Earlier this year, data showed that New Zealand’s emissions had increased by 2% in 2018-19.

While a number of countries are introducing similar legislation or regulations, officials said New Zealand’s law was the first to require companies across the financial system to report on climate exposure to investors. In June, France set new targets that will require investors to declare how green their assets are and set greenhouse gas emissions goals every five years from 2021 onwards – and was the first major economy to make the rules binding. Similar rules are in the works in the UK, and should come into force in 2025.

When Shaw first called for the bill last year, he said that “Australia, Canada, [the] UK, France, Japan, and the European Union are all working towards some form of climate risk reporting for companies … But New Zealand is moving ahead of them by making disclosures about climate risk mandatory across the financial system.”

By Anisa