Fund managers and others captured by the new climate-reporting regime will have two years to come up to scratch before regulatory policing steps up.
In a document released alongside draft climate-reporting guidance, the Financial Markets Authority (FMA) says it plans “to settle into a ‘steady state’ level of monitoring by the third year of the regime”.
“We will carry out proactive risk-based sampling and more detailed review procedures, including regularly examining the underlying records that support climate statements,” the FMA says.
“We will also look at whether CREs [climate-reporting entities] have consistently improved their reporting, including incorporating feedback that is provided both in our monitoring reports and to them individually.”
During the inaugural climate-reporting period now underway (first disclosures are due early in 2024) the regulator will focus on five compliance factors, namely: meeting deadlines; ensuring reports are filed by the correct legal entity; full disclosures; transparency and “sufficient context” of statements; and, consistency of climate reports “internally” and compared to other documents published by the entity in question.
“If we notice any inconsistencies or contradictory messages that may be in breach of other laws or regulations, we will share this information with the applicable Government agency,” the FMA says.
By year two the regulator will shift to supporting “development of best practice” before swinging to police mode in 2025.
Meanwhile, the 54-page FMA draft guidance on “proper climate-related disclosure records” details expected documentation across four business requirements in line with the External Reporting Board standards, covering: governance; risk management; strategy; and, metrics and targets.
Jenika Phipps, FMA climate related disclosure manager, said in a release: “For climate statements to be relied upon to achieve the purpose of the climate-related disclosures regime they must be supported by proper records. Records support the accuracy and legitimacy of climate statements, including substantiating how the CRD [climate-reporting disclosure] framework has been applied.
“Proper records help Climate Related Entities and their directors demonstrate compliance with their legislative duties and obligations.”
The FMA also released a guide for using third-party providers to meet climate-reporting rules including some due diligence tips.
“Responsibility for compliance with the CRD regime remains with the CRE, irrespective of whether or how third-party providers are involved. CREs must ensure that any providers they engage will enable them to meet their legal obligations,” the information sheet says.
Given the scale of data and analysis required under the new climate-reporting rules, most of the 200 captured entities (including fund managers with $1 billion plus in assets) will likely use third-party providers for at least part of the process.
Submissions on the proposed guidance on climate-reporting record-keeping duties are due by August 4.