The Government has introduced legislation to make climate-related disclosures mandatory for some organisations. The requirement would apply to publicly listed companies and large insurers, banks, non-bank deposit takers and investment managers.
The mandatory regime would be introduced through an amendment to the Financial Markets Conduct (FMC) Act 2013. If approved by Parliament, the legislation will require around 200 large FMC-reporting entities to start making climate-related disclosures for financial years commencing in 2022, with disclosures being made in 2023 at the earliest.
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill
The majority of large New Zealand entities provide limited or no information on what climate change might mean to them, or are reporting in inconsistent ways.
This information deficit is driving 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:
Mandatory reporting of climate-related disclosures would help New Zealand meet its international obligations and achieve its target of net zero carbon by 2050. It would also help to address climate change risks outlined in the National Climate Change Risk Assessment by making our financial system more resilient.
First national climate change risk assessment for New Zealand
Around 200 entities in New Zealand would be required to produce climate-related disclosures (make disclosures).
Managers of registered investment schemes would be required to make disclosures on a fund-by-fund basis. This would ensure investors receive the information needed to understand the impact of climate change on the future performance of their investment.
Overseas incorporated organisations would be required to make disclosures in their New Zealand annual reporting if they are over the above thresholds. This would ensure their New Zealand stakeholders’ needs are met.
The thresholds would be increased from time to time to reflect the movements in the consumers price index.
Reporting would be against a standard that would be issued by the External Reporting Board. The standard would 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:
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.
The External Reporting Board (XRB) will prepare, consult on and issue new reporting standards for businesses required to disclose.
Elements of the disclosures relating to greenhouse gas emissions would be required to have independent assurance.
The Financial Markets Authority (FMA) would be responsible for independent monitoring, reporting and enforcement of the regime.
The External Reporting Board will develop, consult on and issue new reporting standards and implementation guidance material to assist businesses required to disclose.
The Ministry for the Environment will work closely with regulated parties on how to undertake the ‘scenario analysis’ component of the disclosures.
Email crfd@mfe.govt.nz if you’d like to be involved in those discussions.
Some international organisations have begun producing good practice handbooks, case studies and guidance for reporting climate-related risks and opportunities using the TCFD recommendations.
We encourage you to provide input at the Select Committee stage of the legislative process.
There will also be opportunities for stakeholder engagement when the External Reporting Board begins developing new standards and guidance material for producing climate-related financial disclosures.
The Select Committee page is available on the Parliament website.