Submission on the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill

In a world first the government has introduced the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill (‘Bill’) which mandates climate-related disclosures (on a ‘comply or explain’ basis) by certain Financial Market Conduct (‘FMC’) reporting entities (defined in the Bill as ‘climate reporting entities’). These include:

• all equity and debt issuers listed on the NZX
• all registered banks, credit unions and building societies with total assets of more than $1 billion
• all managers of registered investment schemes with greater than $1 billion in total assets under management
• all licensed insurers with greater than $1 billion in total assets under management or annual premium income greater than $250 million.

The Bill requires climate reporting entities to:

• prepare climate statements in accordance with climate standards currently being developed by the XRB (to be completed within 4 months after the balance date of the entity and signed by two directors)
• obtain an assurance engagement from a qualified climate-related disclosure assurance practitioner in relation to those statements (but only to the extent those statements are required to disclose greenhouse gas emissions)
• lodge the statements with the Registrar of Financial Service Providers
• keep proper climate-related disclosure records, for at least 7 years
• provide access (eg cross reference) in the annual report to where the climate statements and assurance practitioner’s report can be found.

An exception is allowed for climate reporting entities who have reasonably determined they are not materially affected by climate change, although they need to obtain independent assurance of their determination from a qualified assurance practitioner.

The disclosures are to be aligned with the Task Force on Climate-related Financial Disclosures (‘TCFD’) framework and in accordance with the standards currently being developed by the External Reporting Board (‘XRB’). XRB has indicated that it is expecting to publish its climate standards by the end of 2022, which means the first disclosures may be required in 2023.

In our submission on the Bill we support the introduction of climate-related disclosures, and agree that disclosures aligned with the TCFD framework, and in accordance with the development of climate standards by the External Reporting Board (‘XRB’), are an appropriate means of reporting climate-related disclosures in New Zealand.

To help ensure an effective and successful reporting regime, we encourage the Committee to consider:

• introducing an exemption for smaller entities
• allowing a longer period for implementing the reporting regime, including phasing in assurance requirements, at least 3 years after reporting commences, to enable the development of both reporting and assurance professional capability, experience and expertise
• ensuring the requirement for assurance for utilising the reporting exemption does not end up requiring undue reporting (and thereby defeat the purpose of the exemption)
• reassess the level of penalties and defer their introduction - focusing on education and continuous improvement as reporting evolves and matures in the initial years.

We strongly oppose the Bill’s inclusion of imprisonment for directors of an entity that fails to comply with the climate standards on the basis that individual criminal liability and the penalty of imprisonment are not appropriate in the circumstances and are inconsistent with the purposes of the Bill.

We also note guidance, education and support will be essential to help organisations fulfil their reporting requirements.