By Sarah Vrede
FMA Director of Capital Markets
As world leaders gathered for COP26 to discuss how to fight climate change, in New Zealand we were taking our first steps towards mandatory Climate-related Disclosures for significant financial entities.
New legislation passed last month requires certain entities, known as Climate Reporting Entities (CREs), to produce annual climate statements that identify and report on the impact of climate change on their organisations and disclose their greenhouse gas emissions.
The aim of the legislation is to help ensure the effects of climate change are routinely considered in their businesses, investments, lending and insurance underwriting decisions.
Around 200 entities will be part of this new regime, and they’ll be required to:
The new requirements will apply to a range of different financial sector entities, including New Zealand’s larger listed companies - both issuers of quoted equity securities and / or quoted debt securities. An equity issuer will be in scope if the market price of all its equity securities exceeds $60 million, and for a debt issuer if the face value of its quoted debt exceeds $60 million.
The regime also includes registered banks, credit unions and building societies with total assets over $1 billion; licensed insurers with total assets over $1 billion or annual gross premium revenue over $250m; and managers of registered investment schemes, such as KiwiSaver and investment funds with greater than $1 billion in total assets under management.
At the FMA we will be responsible for monitoring and enforcing this new regime. We’re currently scoping our regulatory and enforcement approach, which will be heavily dependent on the climate standards issued by the XRB.
While it’s new for the entities involved, it also means pioneering work for us at the FMA.There is understandably some nervousness from in scope entities around the new regime — how will it work? - how will it be enforced? - how onerous will it be to comply?
We are very conscious that New Zealand is the first country in the world to mandate implementation of require climate-related disclosures set by its standard-setting body.
Our initial approach will be focused on guiding and supporting in scope entities to meet the new reporting requirements.
We plan to provide guidance and set expectations for implementing the new requirements before we move to a steady state of monitoring companies’ disclosures and reporting. We expect to issue some high-level guidance on compliance expectations next year and this will be followed by more detailed work throughout 2023.
Based on the current anticipated timeframe, any entity with a 31 March balance date will file its first climate statement by 31 July 2024. We are expecting the first batch of climate statements to be filed from April 2024 onwards.
Our primary focus as regulator of this regime, will be on supporting the development of good practice and — at least initially — enforcement action will focus on only serious misconduct. This would include failure to produce climate statements or where statements are misleading or false.
While there is time to develop good practice and prepare for the first statements from 2024, we’re encouraging entities to start preparing for the new regime as soon as possible. This means finding the right people and business partners to help you understand the requirements and prepare your disclosures and getting your systems ready to ensure climate related records can be properly captured and maintained.