Mandatory climate-related disclosures
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 makes climate-related disclosures mandatory for some organisations. The requirement will apply to large publicly listed companies and large insurers, banks, non-bank deposit takers and investment managers.
The Act amends the Financial Markets Conduct Act 2013 (FMC Act), the Financial Reporting Act 2013, and the Public Audit Act 2001. The new law will require around 200 large financial institutions covered by the FMC Act to start making climate-related disclosures for financial years commencing in 2023, with disclosures being made in 2024 at the earliest.
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill(external link) – New Zealand Legislation
Purpose of mandatory reporting
The majority of large New Zealand entities provide limited or no information on what climate change might mean to them, or are reporting in inconsistent ways.
This information deficit is driving what the Productivity Commission termed in their Low Emissions Economy report “an ongoing and systemic overvaluation of emissions-intensive activities”.
The goal of mandatory climate-related disclosures is to:
- ensure that the effects of climate change are routinely considered in business, investment, lending and insurance underwriting decisions;
- help climate reporting entities better demonstrate responsibility and foresight in their consideration of climate issues; and
- lead to more efficient allocation of capital, and help smooth the transition to a more sustainable, low emissions economy.
Mandatory reporting of climate-related disclosures will help New Zealand meet its international obligations and achieve its target of zero carbon by 2050. It will also help to address climate change risks outlined in the National Climate Change Risk Assessment by making our financial system more resilient.
Organisations that will have to make disclosures
Around 200 entities in New Zealand will be required to produce climate-related disclosures. These climate reporting entities 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 under management or annual gross premium income greater than $250 million.
- Large listed issuers of quoted equity securities or quoted debt securities. An equity issuer is large if the market price of all of its equity securities exceeds $60 million and a debt issuer is large if the face value of its quoted debt exceeds $60 million. Issuers listed on growth markets are excluded from the climate reporting entity definition.
Managers of registered investment schemes will be required to make disclosures on a fund-by-fund basis. This ensures investors receive the information needed to understand the impact of climate change on the future performance of their investment.
Overseas incorporated organisations will be required to make disclosures if their New Zealand business is over the thresholds outlined above. This will ensure their New Zealand stakeholders’ needs are met.
The thresholds will be increased from time to time to reflect the movements in the consumers price index.
What reporting will require
Reporting will be against one or more standards that will be issued by the External Reporting Board (XRB). These standards will be developed in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD recommendations are structured around 4 thematic areas that represent core elements of how organisations operate:
- risk management, and
- metrics and targets.
The recommendations are considered international best practice for climate-related financial reporting and are already being used in New Zealand and other countries on a voluntary basis.
The new disclosure regime will be phased in. In the first stage, the XRB will prepare, consult on and issue new reporting standards for businesses required to disclose.
Reporting under the new climate reporting standards will be required in the second phase (1 year after Royal assent). In the third phase (3 years after Royal assent), elements of the disclosures relating to greenhouse gas emissions will be required to have independent assurance.
The Financial Markets Authority (FMA) will be responsible for independent monitoring, reporting and enforcement of the regime.
Some international organisations have begun producing good practice handbooks, case studies and guidance for reporting climate-related risks and opportunities using the TCFD recommendations.
- Climate measurement standards initiative financial disclosure guidelines(external link) — Climate Measurement Standards Initiative
- Pilot project on implementing the TCFD recommendations for banks(external link) — UNEP Finance Initiative
- Understanding physical climate risks and opportunities [PDF, 7.0 MB](external link) — The Institutional Investors Group on Climate Change
- Task force for climate-related financial disclosures knowledge hub(external link) — TCFD Knowledge Hub
Opportunities for public input
New regulations are required to support the Climate-related Disclosures regime. MBIE is now consulting on an exposure draft of regulations prescribing requirements relating to record-keeping and infringement notices. This consultation closes on 12 July 2023.
For more information and to make a submission, visit the Have Your Say page
Have Your Say
- Climate-related financial disclosures discussion document(external link) – sets out our initial policy thinking – Ministry for the Environment website
- Climate-related financial disclosures: summary of submissions(external link) – Ministry for the Environment
- Cabinet paper: Climate-related financial disclosures(external link) – Ministry for the Environment
- Regulatory impact assessment: Climate-related financial disclosures(external link) – Ministry for the Environment
- Low emissions economy report(external link) – New Zealand Productivity Commission
The XRB has now completed development of the standards for Climate-related Disclosures. These can be found on the XRB website.
- Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill: Approval for Introduction [PDF 106KB]
- Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill: Approval for Introduction - Minute of Decision [PDF 63KB]
- Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill - Disclosure Statement [PDF 129KB]
- Implementing the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 [PDF 2.2MB]