Jenika Phipps, Manager Climate Related Disclosures, FMA
Across the globe businesses, investors, consumers and governments are grappling with how climate risks and opportunities are measured, disclosed and reported.
New Zealand is already well down the path, being one of the first counties in the world to introduce mandatory climate-related disclosures for our biggest fund managers, banks, insurers and listed companies.
And now that the climate standards have been developed and published, it’s our job here at the FMA to monitor and enforce compliance.
So how are we going to do this? Investors and businesses need a good idea of how we’re going to go about the job that we’ve been asked by Government to perform.
Today we’ve released our Monitoring Oversight Plan 2023-2026, summarising and describing the way we’ll be approaching our monitoring and enforcement of the new Climate-Related Disclosures (CRD) regime.
The regime is designed to:
- ensure that the effects of climate are routinely considered in business, investment, lending, and insurance underwriting decisions
- help Climate Reporting Entities (CREs) 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.
In the first years of the new regime, we will be here to help - we are going to take a “broadly educative and constructive approach,” supporting CREs and encouraging the development of good practice. This will start with our issuing high level guidance on compliance expectations and then we’ll move towards taking a more proactive regulatory role as the regime becomes more established.
Our approach will evolve over the next few years and we anticipate it will include these stages:
We’ll see the first climate statements being lodged in early 2024 and we expect CREs to have made reasonable efforts to comply with their CRD regime obligations.
CREs must lodge their climate statements with the Companies Office within four months of balance date, otherwise request a formal exemption to the FMA in advance of the filing deadline. It is important for investors and stakeholders to have timely access to these climate statements.
We’ll review climate statements and give timely feedback to encourage the development of good practice and support improvements.
At this stage, we only expect to review the supporting records if we see areas where there might have been significant non-compliance. We’ll also keep engaging with CREs and key stakeholders, issuing guidance and publishing factsheets as required.
And while enforcement action is still an option at this early stage, we only expect to be heading down this path where there has been serious misconduct, such as failure to produce a climate statement or where a statement is false or misleading.
We expect to then move on to supporting development of best practice.
For reporting years beginning in 2024, CREs in their second year of reporting will be required to obtain independent assurance over greenhouse gas emissions. We expect them to have improved on their first-year reporting based on our monitoring report for those statements released in 2024 and on any feedback provided to them individually.
By reporting year three of the regime (commencing in 2025), climate-related disclosures will be well embedded across the industry, so we aim to then settle into a “steady state” level of monitoring. We will also be carrying out proactive risk-based sampling of CREs and more detailed reviews, including a regular examination of the underlying records that support climate statements.
Education and communication
We may communicate with CREs during FMA’s climate statement reviews and in most cases, we’re expecting these enquiries will be more about trying to better understand the disclosures, rather than investigating non-compliance. During this communication we expect CREs to engage constructively with us and have records readily available that support the calculations, decisions and assumptions underlying their climate statements.
It's the start of a new and compelling time for New Zealand business and we’re delighted at the positive response we’ve received about the new regime. We’re confident that high quality, robust and useful climate statements will soon become an essential tool for our business community.
Read more about the FMA’s CRD work, including a timeline
