If approved by Parliament, the new comply-or-explain climate risk disclosure regime could come into effect in 2023 at the earliest.
New Zealand’s government is seeking to become the first country in the world to require the financial sector to mandatorily report on climate risks.
“Today is another step on the journey this Government is taking towards a low carbon future for Aotearoa New Zealand and a cleaner, safer planet for future generations,” Minister for Climate Change James Shaw announced on Tuesday (15 September).
“Many large businesses in New Zealand do not currently have a good understanding of how climate change will impact on what they do. The changes I am announcing today will bring climate risks and resilience into the heart of financial and business decision making. It will ensure the disclosure of climate risk is clear, comprehensive and mainstream,” Shaw said.
The new regime will operate on a comply-or-explain basis, based on the TCFD (Task Force on Climate-related Financial Disclosures) framework.
Businesses covered by the requirements will have to make annual disclosures, covering governance arrangements, risk management and strategies for mitigating any climate change impacts. If businesses are unable to disclose, they must explain why.
In total, around 200 organisations will be required to disclose their exposure to climate risk, including:
- All registered banks, credit unions, and building societies with total assets over NZD 1 billion
- All managers of registered investment schemes with more than NZD 1 billion in total AUM
- All licensed insurers with more than NZD 1 billion in total AUM or annual premium income greater than NZD 250 million
- All equity and debt issuers listed on the NZX
- Crown financial institutions with greater than NZD 1 billion in total assets under management, such as the ACC (Accident Compensation Corporation) and NZ Super Fund
- Overseas incorporated organisations with annual reporting obligations in New Zealand
The NZD 1 billion threshold will ensure about 90 percent of AUM in New Zealand are included within the disclosure system.
“What gets measured, gets managed – and if businesses know how climate change will impact them in the future they can change and adopt low carbon strategies,” Shaw said. “Covid-19 has highlighted how important it is that we plan for and manage systemic economic shocks – and there is no greater risk than climate change.”
Under the regime, the XRB (External Reporting Board), an independent Crown Entity responsible for accounting and auditing & assurance standards, will develop reporting standards, while the FMA (Financial Markets Authority) will be responsible for independent monitoring, reporting and enforcement.
If approved by Parliament, financial entities could be required to make disclosures in 2023 at the earliest.