The Government has confirmed it will be requiring climate-related financial risk reporting – on a ‘comply or explain’ basis – for listed corporates and major financial institutions.
Who is covered?
All equity and debt issuers listed on the NZX will be covered, as will most large banks, credit unions, building societies, fund managers and insurers.
The Government has altered its initial proposal by:
- inserting a minimum asset threshold of $1b for banks, credit unions, building societies, insurers and fund managers together with an annual premium income threshold for insurers of $250m, and
- explicitly including building societies and Crown financial institutions (e.g. ACC and the NZ Super Fund) meeting the above $1b asset management criterion.
The stated intention is to require overseas incorporated organisations to disclose in their New Zealand annual reporting. However, the Government has not included large privately held entities, a possibility it had earlier indicated it was considering.
Even with the new thresholds, it is expected that the reporting obligations will have significant coverage – around 200 mandatory reporting organisations, representing ~90% of assets under management in New Zealand.
What reporting will be required?
Target organisations will have to make annual disclosures covering governance of climate-related financial risk within the organisation, strategy, risk management, and metrics and targets linked to risks and opportunities arising from climate change. If businesses are unable to disclose, they will be required to explain why.
The reporting will be based on the 2017 recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), a global initiative led by Michael Bloomberg and Mark Carney.
Specific reporting implementation standards are being developed for the New Zealand context by the External Reporting Board (XRB), with funding support from the Government. We anticipate that this will be a collaborative process involving the sector.
The Financial Markets Authority will be responsible for independent monitoring, reporting and enforcement.
When will this take effect?
The requirements will require legislative reform (through an amendment to the Financial Markets Conduct Act 2013). Given Parliament will not be sitting again until after the election, the details will be a matter for the next Government. As there is broad support for the policy from key players in the financial sector (including Reserve Bank Governor Adrian Orr), we expect it will proceed regardless of the election result.
Legislative timing, as well as the need to develop implementation standards, mean that the earliest that climate risk reporting is expected to take effect is in respect of the 2022 – 2023 reporting year.
Further opportunities for input
Affected parties will have a further engagement opportunity on the proposals during the Select Committee stage. We also encourage you to closely watch the XRB’s development of reporting standard(s) and to stay involved in any XRB consultation.
Read our previous commentary: Climate risk disclosure – coming your way soon?
Our Tool Kit for directors
Our Tool Kit, Managing Climate Risk in New Zealand, is intended to make climate risk manageable for boards. It provides practical insight and advice on what directors should be focusing their attention on – now, and in the coming years. If you are interested in receiving a copy please email us at email@example.com