The once-obscure government-funded accounting standards body, the External Reporting Board (XRB), has seen its budget balloon by almost 60 per cent in this financial year ahead of planned new climate-reporting duties.
In the just-released statement of expectation for the 12 months starting July 1 this year, the government-mandated XRB has slated an extra $4.1 million in costs for the period with most of the increase linked to the mooted climate-reporting standards.
“The XRB anticipates its mandate to be expanded to include the development of Climate related disclosure standards and integrated reporting,” the statement says. “The XRB received an additional $1.1M appropriation in 2020/21. The XRB has made a cost pressure bid for both our anticipated expanded mandate and cost pressures for our current outputs totalling $4.1M in 2021/22.”
Total XRB government-sourced revenue will jump to about $8.6 million over the coming fiscal period, the statement shows, compared to about $5.5 million (including the extra $1.1 million budget booster) in the 2020/21 year.
The new spending allocations include $3.2 million for “preparing and issuing climate standards and non-binding integrated reporting guidance” and $1.2 million to liaise and “influence” international bodies.
“Personnel costs has increased by $1.8M as the XRB will need to grow its workforce to be able to deliver on the proposed new mandate and to its current functions,” the statement says. “We estimate that additional eight full time employees will be required.”
XRB board fees are also set to double to over $1.2 million to cover “additional meeting time in order to meet increased activity regarding its current functions and new mandate work”.
Initially established under the 1993 Financial Reporting Act, the XRB – an independent body funded by government – is charged with creating and maintaining financial reporting standards for business, public and not-for-profit sectors.
“Our approach is to adopt international standards which are modified to reflect unique New Zealand conditions. We also look to harmonise our standards with Australia,” the XRB website says. “This approach is designed to ensure we keep pace with international practice and also reduce our standard-setting costs.”
However, the XRB will roam into new territory with responsibilities under the in-transit Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill. The proposed legislation, currently in select committee phase, will impose new climate-reporting obligations – with details determined by the XRB – on most financial institutions (including fund managers with over $1 billion in assets) and listed companies.
The XRB, headed by April McKenzie, will adapt the global Task Force on Climate-related Disclosures (TCFD) standards for local conditions.
Among 53 submissions on the draft legislation published last week, fund manager lobby body – the Boutique Investment Group (BIG) – calls for several amendments including a longer lead-in time for compliance for the industry beyond the proposed start date in the next financial year.
“We are concerned that the proposed deadline for Climate Statements after the finalisation of Climate Standards to be published by the XRB does not leave sufficient time to implement processes required to collect and collate the relevant data,” the BIG submission says. “We seek reassurance from the Financial Markets Authority (FMA) that the enforcement approach to be taken in the first few years of this legislation coming into force will be focused on working with Climate Reporting Entities to establish workable methods for implementing the Climate Standards.”
Furthermore, the BIG submission asks for cash funds to be exempt from any climate-reporting standards while also seeking to dial-back proposed obligations on fund managers to assure the validity of underlying greenhouse gas data and a delay on civil liability provisions in the bill.
“This due to concerns that fund managers could be exposed to damages claims as a result of matters outside of their control when third party data is not available or of varying quality,” BIG says.
As well, the fund manager group says the XRB should work closely with the industry to “make sure that the Climate Standard(s) under development applicable are workable and achievable for our specific context where we rely on disclosure of climate risk data from investee companies that may or may not be subject to disclosure requirements themselves”.
“A common methodology across the sector will be critical for meaningful disclosure,” the submission says.
BIG members signed on the submission include Nikko; AMP (both wealth and fund management arms); Aspiring; Booster; Generate; Harbour; Kiwi Wealth; Milford; Mint; Oyster; and Pie.
The Financial Services Council (FSC), which mostly represents the larger insurance and banking organisations, also notes several areas of concern in the draft law around practical implementation issues and underlying definitions.
“We encourage the issuance of further guidance and therefore welcome the continued engagement between the External Reporting Board (XRB) and other bodies and the industry on climate matters,” the FSC says.
The Finance and Expenditure Committee is due to report back on the climate-reporting bill on August 16.