Parliament kicked off new legislation last week that will introduce new climate reporting standards for NZ banks, insurers, listed companies and ‘large’ fund managers.
About 200 entities, including licensed investment schemes with $1 billion or more under management, will fall under the law, requiring regular, consistent public reporting on to-be-determined climate metrics.
As well as imposing climate-reporting standards on the defined business sectors, the Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill will establish an independent External Reporting Board (XRB) to set the disclosure rules while handing regulatory oversight of the regime to the Financial Markets Authority (FMA).
According to the Ministry of Business, Innovation and Employment, the XRB “standards would be developed in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)”.
The proposed law also allows for the XRB ambit to move beyond climate with the ability to “to issue guidance on a wider range of environmental, social and governance and other non-financial matters that can be applied on a voluntary basis”, according to the bill digest.
If passed, the legislation would compel captured firms to issue the climate-related disclosures from the 2022/23 financial year onwards.
Climate Minister and Green Party co-leader, James Shaw, said in a release: “Requiring the financial sector to disclose the impacts of climate change will help businesses identify the high-emitting activities that pose a risk to their future prosperity, as well as the opportunities presented by action on climate change and new low carbon technologies.”
Excluding ACT, whose 10 members voted against it, the bill received broad cross-party support in the first reading in parliament last week – albeit with some National Party reservations about the short lead-in time and potential unintended consequences arising from the proposals.
During the debate, Commerce Minister David Clark, said the climate “risks are real”.
“The risks to investors are something that we’re thinking about today, and as we do that—as we think about where capital is invested in future, and send clear signals around reporting—what we’re doing is providing better market information,” Clark said. “We know that markets, basically, are about information. They are about making sure that investors know where capital is wisely put and where it is unwisely put. So if that capital is going to assets that are going to make for a better, more climate-friendly future, that is something we want to see more of. If investment is going into assets that could end up stranded as we move away from a polluting culture and from outdated technologies, well, that means we have the inefficient allocation of capital, and that means less-effective markets.”
However, National member Michael Woodhouse, said parliament needed to ensure that “we’re not imposing even very large companies with the burden of reporting on matters that are quite esoteric or difficult”.
“We’re not going to change the world of capital markets with this Act when it’s passed, but I think we are going to be able to shine a light on things that are important to all of us, actually,” Woodhouse said.
Andrew Bayly, National finance spokesperson, said the law could see large funds shy away from investing in current high-emission assets – such as concrete manufacturers – that were transitioning to ‘greener’ processes due to “possible victimisation” based on the new climate disclosures.
“… that means that we’re going to see many of these types of organisations, many of them professional investors, particularly the funds, choosing not to even contemplate investments that would otherwise lead to a better environment for the world, and certainly for New Zealand, by reducing their emissions,” Bayly said.
He also said “confidence in the new regime will be undermined if it proceeds as currently proposed, because [the FMA] consider there is an initial impracticality of compliance by managers of registered investment schemes”.
The bill has now been shunted off to the Economic Development, Science, and Innovation Committee for a four-month do-over.
Meanwhile, two other pieces of legislation affecting the NZ financial services sector have yet to pass muster.
The Financial Markets Infrastructure Bill awaits a restart of its third reading after pausing earlier in April while the Financial Markets (Conduct of Institutions) Amendment Bill has been booted down the priority list to 15th on the latest parliamentary order paper.