New Zealand Passes Climate Reporting Legislation in World First

Mandatory climate disclosures will be required from early 2024, for annual reporting periods that start on or after 1 January 2023.

New Zealand has passed a law that will require financial firms to disclose and act on climate-related risks and opportunities.

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill, which will make climate-related disclosures mandatory for most listed issuers, banks, insurers and investment managers, was introduced in Parliament in April.

The bill has now passed its third reading in Parliament, paving the way for mandatory climate disclosures to be introduced for financial years beginning in 2023, subject to the development and publication of climate reporting standards by New Zealand’s independent accounting standard setter, the External Reporting Board (XRB).

The XRB is presently consulting until 22 November on the new standards, which will be based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The current consultation focuses on governance and risk management. A second consultation focusing on strategy, metrics and targets will be issued in March 2022.

Once the new law and related standards are in effect, around 200 of the largest financial market participants in New Zealand will be required to disclose “clear, comparable and consistent information about the risks, and opportunities, climate change presents to their business”, said Commerce and Consumer Affairs Minister David Clark.

“In doing so, it will promote business certainty, raise expectations, accelerate progress and create a level playing field,” he said in a joint statement with Climate Change Minister James Shaw.

Shaw said the legislation is among a number of actions the New Zealand government is taking to meet its international obligations and achieve the 2050 emissions targets required by the Climate Change Response Act 2002.

“Climate-related disclosures will bring climate risks and resilience into the heart of financial and business decision making,” he said. “It will encourage entities to become more sustainable by factoring the short, medium, and long-term effects of climate change into their business decisions.”

The new regime will capture large, listed equity or debt issuers with over NZ$60 million in market cap or quoted debt, respectively, as well as registered banks, credit unions and building societies with total assets over NZ$1 billion.

Licensed insurers with total assets over NZ$1 billion or annual gross premium revenue over NZ$250 million will also be captured, as will managers of registered schemes (e.g. Kiwisaver schemes, investment funds) with more than NZ$1 billion in assets under management.

Under the current timeline, mandatory climate disclosures will be required from early 2024 at the earliest, for annual reporting periods that start on or after 1 January 2023.

The Financial Markets Authority (FMA) – which will be responsible for monitoring and enforcing the new regime – has separately issued a statement saying it will issue high-level guidance on climate-related disclosure compliance for reporting entities by December 2022, and provide more detailed guidance throughout calendar year 2023.

“Our initial regulatory approach will be focused on supporting climate reporting entities and other relevant stakeholders as they prepare for the new regime,” said FMA Director of Capital Markets Sarah Vrede.

For the next few years, the FMA will focus on supporting and encouraging development of good practice, and enforcement action is likely to only be focused on “serious misconduct”, such as failure to produce climate statements or where climate statements are false or misleading.

Meanwhile, the Ministry of Business, Innovation and Employment (MBIE) and the FMA are consulting on two proposed funding options for the FMA’s responsibilities under the new regime. The consultation, published here, is open for comment until 7 November 2021.

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