Mandatory climate-related disclosures

The Government has passed legislation making climate-related disclosures mandatory for some organisations. The requirement will apply to large publicly listed companies, insurers, banks, non-bank deposit takers and investment managers.

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 amends the Financial Markets Conduct Act 2013 (FMC Act), the Financial Reporting Act 2013, and the Public Audit Act 2001. The new law will require around 200 large financial institutions covered by the FMC Act to start making climate-related disclosures. Affected organisations are expected to publish disclosures from financial years commencing in 2023, subject to the publication of climate standards from the External Reporting Board (XRB).

Find more information about the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 [Parliament]

Purpose of mandatory reporting

The majority of large New Zealand financial organisations provide limited to no information on what climate change might mean for them or are reporting in inconsistent ways. 

This lack of information causes what the Productivity Commission termed in their Low Emissions Economy report “an ongoing and systemic overvaluation of emissions-intensive activities”. 

The goal of mandatory climate-related disclosures is to:

  • ensure that the effects of climate change are routinely considered in business, investment, lending and insurance underwriting decisions
  • help climate reporting entities better demonstrate responsibility and foresight in their consideration of climate issues
  • lead to more efficient allocation of capital, and help smooth the transition to a more sustainable, low emissions economy.

Mandatory climate-related disclosures will help New Zealand meet its international obligations and achieve its target of net zero carbon by 2050. By improving transparency and revealing climate-related information within financial markets, our financial system will become more resilient and climate change risks outlined in the National Climate Change Risk Assessment will be addressed.

First national climate change risk assessment for New Zealand

Organisations that would have to make disclosures

Around 200 entities in New Zealand will be required to produce climate-related disclosures. These climate reporting entities include:

  • All registered banks, credit unions, and building societies with total assets of more than $1 billion.
  • All managers of registered investment schemes (other than restricted schemes) with greater than $1 billion in total assets under management.
  • All licensed insurers with greater than $1 billion in total assets or annual premium income greater than $250 million.
  • Listed issuers of quoted equity securities with a combined market price exceeding $60 million.
  • Listed issuers of quoted debt securities with a combined face value of quoted debt exceeding $60 million. 

Issuers listed on growth markets are excluded from the climate reporting entity definition.

Crown Financial Institutions with greater than $1 billion in total assets under management are additionally required to produce climate-related disclosures.

Managers of registered investment schemes will be required to make disclosures on a fund-by-fund basis. This ensures investors receive the information needed to understand the impact of climate change on the future performance of their investment.

Overseas incorporated organisations will be required to make disclosures if their New Zealand business is over the thresholds outlined above. This will ensure their New Zealand stakeholders’ needs are met.

The thresholds will be increased from time to time to reflect the movements in the consumers price index.

What reporting would require

Reporting will be against a standard issued by the XRB. The standard will be developed in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017)

The TCFD recommendations are structured around four thematic areas that represent core elements of how organisations operate.

They are: 

  • governance
  • strategy
  • risk management
  • metrics and targets (see recommended disclosures section).

The recommendations are considered international best practice for climate-related financial reporting and are already being used in New Zealand and other countries on a voluntary basis. 

Phased implementation

The new disclosure regime will be gradually phased in. In the first stage, the XRB will prepare, consult on and issue new reporting standards for businesses required to disclose.

Reporting under the new climate reporting standards will be required in the second phase (one year after Royal assent). In the third phase (three years after Royal assent), elements of the disclosures relating to greenhouse gas emissions will be required to have independent assurance.

The Financial Markets Authority (FMA) would be responsible for independent monitoring, reporting and enforcement of the regime.

International guidance

Some international organisations have started producing good practice handbooks, case studies and guidance for reporting climate-related risks and opportunities using the TCFD recommendations. 

Opportunities for public input 

Consultation and Engagement [External Reporting Board] 

The XRB has started consultation on the development of the standards.  

In July 2022, the XRB will provide a formal exposure draft of the complete climate standard alongside accompanying documents, such as the draft adoption standard.

Find out more