Recent changes will affect many larger entities in New Zealand from next year who will need to make new disclosures about climate related issues. This impacts everyone because it is an indication of where disclosure trends are heading.
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 (the “Amendment Act”) received Royal assent on 27 October 2021. The Amendment Act makes climate-related disclosures (“CRDs”) mandatory for some organisations by amending the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013 and the Public Audit Act 2001. The External Reporting Board (“XRB”) has recently finished its consultation process on CRDs and expects to issue Aotearoa New Zealand Climate Standards in December of 2022 (see here).
Who has to make these climate disclosures?
Approximately 200 entities in Aotearoa New Zealand will be required to produce CRDs, which include:
- All registered banks, credit unions and building societies with total assets of more than $1 billion;
- All managers of registered investment schemes (other than restricted schemes) with greater than $1 billion in total assets under management;
- All licensed insurers with greater than $1 billion in total assets or annual premium income greater than $250 million;
- Listed issuers of quoted equity securities with a combined market price exceeding $60 million; and
- Listed issuers of quoted debt securities with a combined face value of quoted debt exceeding $60 million.
For now, the current statutory regime only requires large enterprise value entities to produce CRDs. However we can anticipate that smaller entities that obtain or apply for funding from such entities or obtain insurance from such entities may in future be required to report on their own climate change risks in order to secure funding or insurance.
Purpose of requiring disclosures and some comments
Although the XRB has not yet issued the standard for CRDs, there are a few key observations to note:
- Currently, the CRDs are designed to help publicise the risks that climate change may pose to a reporting entity’s enterprise value.
- Given the above, the primary users of the CRDs are expected to be investors, lenders and creditors – people who are most concerned about the financial health of the reporting entity.
- The XRB’s the proposed standards for the CRDs have a ‘single materiality’ lens (e.g. the focus is on climate change’s financial risk to the reporting entity) but considers that this approach is a foundation that can be built upon to possibly include ‘double materiality’ in the future (e.g. disclosing on the reporting entity’s environmental impact).
- In our view requiring these entities to also be talking about the impact they will have on climate would be a positive step (only reporting on the impact on the entity means this regime remains wrapped in a ‘shareholder primacy’ lens ultimately focused on impact on the shareholder – rather than the broader impact the entity will have on stakeholders).
We will update this article as the XRB releases its standard for CRDs. If you would like to know more about the statutory requirements for climate-related disclosures, please do feel free to reach out to us at stevenmoe@parryfield.com or yangsu@parryfield.com.
