New climate-reporting standards due to hit many fund managers, banks, insurers and NZX-listed firms next year have passed more-or-less intact through the consultation process – bar some definitional and disclosure tweaks.
Most notably, the External Reporting Board (XRB) removed the term ‘financial planning’, clarified some ‘scope 3’ greenhouse gas disclosure rules and cut an ‘enterprise value’ reference for judging material exposures.
The XRB update says the original requirement to disclose ‘financial planning processes’ has been rephrased as ‘internal capital deployment and funding decision-making processes’ to “avoid conflicting with the typical use of the term” as understood by managed investment scheme (MIS) managers.
Licensed MIS managers with at least $1 billion in assets under management will have to comply with the new climate disclosure rules for the reporting period starting from January next year, although the regulations include one-year (or more) exemptions from certain obligations.
The three XRB standards set out the practical compliance steps those captured under the 2021 Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act that will impose significant reporting and analysis duties on about 200 entities.
In a release, XRB chair, Michele Embling, said: “By providing investors with the information they are increasingly demanding, the reporting regime will help to drive capital towards activities that support the transition to a low-emissions future.
It will also galvanize directors and management to start looking closely at their climate-related risks and opportunities and what strategies and plans they have in place to manage them.”
However, many MIS managers question the relevance and/or the need to publish complex climate reports across multiple fund documents.
MIS industry compliance specialist body, the Boutique Investment Group (BIG), for example, in a submission called for a simplified approach to climate-reporting for licensed fund managers.
“The majority of our primary users are retail investors via Kiwisaver or direct investment schemes who need clear disclosures that are easy to understand without a significant level of climate knowledge,” the BIG submission says. “To this end, we believe disclosures for Managed Investment Schemes should remain high level and link all information to the MIS Manager’s strategy as applicable to the scheme in question.”
In particular, the BIG consultation feedback says the ‘scenario analysis’ requirements – where entities must lay out any pertinent risks and opportunities of several global temperature outcomes – “remains the biggest practical concern” for fund managers.
“Undertaking scenario analysis across a large number of debt and equity instruments, many of which are multi-geography or multi-sector, is an undertaking beyond the resources and capability of most New Zealand MIS Managers,” the BIG submission says.
“In order to provide any qualitative data to meet [certain] disclosure requirement[s]…, MIS Managers will be reliant on third party data providers. The quality of the data can be poor and is variable across different providers. For example, data collected via surveys is generally out of date, and data that is modelled is different for the same company across different providers due to different methodologies. Therefore, even when using common scenarios, the outputs from MIS Managers using different data providers will not be comparable.”
The Financial Markets Authority has been charged with policing the climate-reporting regime.