Thursday September 17 2020

News Source: Fund Regulation

Focus: General - Fund Regulation

Type: General

Country: New Zealand

On 15th September 2020, the New Zealand government announced its plans to make climate-related financial disclosures mandatory for some organisations. The requirement would apply to publicly listed companies and large insurers, banks and investment managers.

Purpose of mandatory reporting

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 financial disclosures is to:

  • promote greater transparency and more accurate pricing signals in the market
  • incentivise low-emissions investment
  • create a level-playing field for businesses already considering climate change in their longer-term risks.

This would help New Zealand meet its international obligations and achieve its target of zero carbon by 2050. It would also help to address climate change risks outlined in the National Climate Change Risk Assessment by making financial system more resilient.

Organisations that would have to make disclosures

There are around 200 entities in New Zealand that would be required to produce climate-related financial disclosures (make disclosures).

  • 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.
  • All equity and debt issuers listed on the NZX.
  • Crown financial institutions with greater than $1 billion in total assets under management.

Entities would be required to make disclosures if they are over the thresholds on the last day of the two most recent financial years.

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.

Foreign exempt issuers listed on the NZX would not be required to make disclosures under this regime. This is consistent with the NZX listing rules.

The thresholds would be increased from time to time to reflect the movements in a suitable price index.

What reporting would require

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:

  • governance
  • strategy
  • risk management
  • metrics and targets (see recommended disclosures section).

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.

Click on the link for further information.