The Financial Markets Authority (FMA) and the External Reporting Board (XRB) have produced a pair of complementary guides designed to help readers interpret the flood of compliance materials about to wash over the country.
Under the climate-reporting disclosure (CRD) regime more than 200 entities, including most retail fund managers, are due to file inaugural statements this year in line with XRB-built standards.
But given the novel, and complex, nature of the climate reports, the joint XRB-FMA guides aim to decipher the jargon and formal structures for first-time readers.
The CRD ‘What you need to know’ and ‘Navigating climate statements’ publications tackle the problem from different angles but with the overall goal of informing “the public of the purpose of the regime”, according to Jacco Moison FMA head of audit, financial reporting and climate related disclosures.
Moisin said the CRD reports would help consumers consider “climate-related risks and opportunities, and then make well-informed decisions based on these assessments”.
Just over 40 entities to date have filed climate statements including several listed firms, insurance companies and banks. However, no fund managers have yet filed with most of the industry expected to lodge after the end of July.
Licensed fund managers (or those with at least $1 billion under management) also face different climate-reporting requirements compared to other businesses captured by the regime.
Fund managers “must prepare disclosures at a fund level, they are allowed to present common information at a scheme level, e.g. if the disclosures on governance and risk management contain common information for each fund within a scheme” .
However, as an example of things-to-come, the NZX was one of the first to include a climate statement in its 2023 annual report, covering off the templated disclosures such as the triple-scenario requirement.
“Our analysis shows in the long term to 2050, there is little material difference between scenarios,” the NZX statement says.
CRD risks include “some uncertainty around regulator and investor expectations in relation to the new regime”, according to the NZX.
“There is also an additional cost component associated with the compliance with the mandatory requirements, including engaging external experts and hiring new colleagues with relevant expertise.”
But the local bourse also notes some climate-change opportunities, too, with the group set to “to support decarbonisation of New Zealand and diversify its revenue streams by offering a range of climate-related products and services, including GSS [‘green’] bonds and ESG-themed ETFs”.
NZ was the first country in the world to introduce compulsory climate-reporting (others including the UK, US and Australia followed suit) in an effort to influence capital flows by disclosure.
“The CRD regime requires mandatory disclosure – not mandatory action,” Moisin said. “The regime does not mandate any actions that must be taken or processes that must be followed, such as improving climate resilience, reducing GHG emissions, pursuing climate-related opportunities, or governing or managing climate-related risks in a certain manner (if at all).”
Nonetheless, the XRB intends to monitor whether the massive disclosure project has any impact on investment decisions.
The XRB has hired the University of Otago to “undertake a multi-year research project between 2023 and 2025” to gauge the “effectiveness of the climate-related disclosure framework”.