How the climate-related disclosures regime will work

investment away from emission-intensive activities and towards low-emission, resilient development pathways. However, this unprecedented economic transformation will require the disclosure of consistent, comparable, reliable, and clear information about climate-related risks and opportunities that are, for the most part, not being made available to investors at present.

Lloyd Kavanagh & Shaanil Senarath-Dassanayake

While the International Sustainability Standards Board (ISSB) is still finalising the standards that many countries are hoping will become their climate reporting framework, New Zealand has already done the hard thinking and is walking the talk.

Our new mandatory climate-related disclosure (CRD) regime, under Part 7A of the Financial Markets Conduct Act 2013 (FMCA), is in force, acting as a model for other countries and intergovernmental bodies wishing to develop their own climate reporting requirements and standards as part of their response to the climate crisis.

The CRD regime is expected to capture around 200 financial institutions and listed companies and applies to reporting periods from 1 January 2023.

The government intends using financial markets to drive change. In 2020, Climate Change Minister James Shaw said climate risk reporting would be introduced as part of New Zealand’s journey towards a low-carbon future to give businesses a good understanding of how climate change will impact them.

In October 2021, the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act amended the FMCA (inserting Part 7A), the Financial Reporting Act 2013, and the Public Audit Act 2001, making it mandatory for specified entities to prepare climate statements.

The intent was recorded in the explanatory note to the bill as introduced into Parliament:

Financial markets globally can play a major part in shifting

The bill went on to say New Zealand’s disclosures would be aligned with the framework provided by the Task Force on Climate-related Financial Disclosures (TCFD). This was created by the Financial Stability Board because of the need for better information to support investment, lending and insurance underwriting decisions and to improve analysis of climate-related risks and opportunities.

Importantly, while this is positioned as a disclosure regime, the analysis required to make the disclosures is expected to lead to significant changes in how business is conducted.

Climate reporting entities

The CRD regime applies to “climate reporting entities” (CREs), including:

■ large NZX-listed issuers of quoted equity securities or quoted debt securities (ie, with a market capitalisation or nominal amount exceeding $60 million);

■ large registered banks, licensed insurers, credit unions and building societies (ie, with total assets exceeding $1 billion or, in the case of licensed insurers, where premium income exceeds $250 million a year); and

■ large licensed managers of registered managed investment schemes (ie, with total assets in registered schemes exceeding $1 billion).

Various governmental agencies are also expected to comply under Ministerial Letters of Expectation, even though they are not covered by the definitions in the legislation.

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