The FMA will be covering monitoring, third-party providers, record-keeping and scenario analysis summer 2023.
New Zealand’s Financial Markets Authority (FMA) is set to introduce additional guidelines on climate-related disclosures to support climate reporting entities (CREs) falling under the scope of mandatory reporting rules.
In October 2021, New Zealand became the first country in the world to pass a law that makes it mandatory for financial firms to disclose and act on climate-related risks and opportunities. Mandatory climate disclosures will be required from early 2024, for annual reporting periods that started on or after 1 January 2023.
In an article published on 26 May, the FMA said it is planning to issue “four new pieces of guidance”, covering monitoring, third-party providers, record-keeping, and scenario analysis. These are all due to be published in June and July 2023.
The FMA said it is taking a “broadly educative and constructive approach” to the new regime, issuing high-level guidance on compliance expectations, then moving to a “proactive” regulatory role as the regime becomes more established.
As the regulator, the FMA will monitor and enforce the new regime, provide guidance, and share feedback to improve the level of reporting over time.
“Our role is to ensure that what CREs disclose can be substantiated,” said FMA Manager for Climate-related Disclosures Jenika Phipps, speaking at a recent event in Auckland.
“It’s how the FMA can ensure the regime contributes to Aotearoa New Zealand’s transition to a more sustainable, low emissions economy.”
“Start preparing immediately”
The first climate statements are to be published in 2024. The FMA said it will support CREs to ensure improvement, but it will take enforcement action if a CRE fails to produce a climate statement or discloses false or misleading information.
There are criminal and civil (financial) penalties for those who do not comply, Phipps warned.
“Adapting to the new record-keeping requirements will be a challenge for many entities. CREs must be able to prove what they report is true,” she said.
“To do this, they [CREs] will need to determine what new climate-related data and information is required to substantiate the climate statements produced for their entity, and identify ways to collect, analyse and store it.”
The FMA has advised CREs to start preparing immediately.
“This is a significant change. It may require more resources, new processes, and systems, and some up-skilling across your organisation. Our advice is don’t delay. Start preparing now.”
On climate risk and financial statements, the FMA said CREs should be transparent in their reporting, adding that they have an obligation to determine whether climate has an impact on their financial statements and other communication, such as product disclosure statements “regardless of whether they fall under the CRD regime”.
Transparency is key
Directors and management teams will be responsible for ensuring financial statements comply with the relevant accounting standards, which means including climate in their risk assessment processes if they are material, the FMA said.
Transparency is “key”, said Jacco Moison, the FMA’s Head of Audit, Financial Reporting and Climate-related Disclosures.
“Entities may want to disclose how they have considered climate risk even if it didn’t have a material impact on their numbers. Users expect to see it and may wrongly assume it’s not been considered if it’s not disclosed.”
In October, the FMA issued guidance for auditors on what it expects to see in audit files on material climate risks, which it said may also be useful for CREs.
From the 2023 reporting season, the FMA’s monitoring of financial reporting and audit quality reviews will consider climate risks, and how these have been addressed, and its monitoring approach will ensure that climate-related disclosures are consistent across multiple documents including financial statements, the regulator said.