The Financial Markets Authority (FMA) has backed down on plans to require fund managers to reference climate statements in other disclosure documents following lukewarm industry reaction to proposed guidance.
In a November update, the FMA says it has “decided to pause work” on an information sheet put out to consultation this July set to load up standard fund disclosures with climate report references.
According to the draft guidance, climate disclosures “are likely to be material information that may influence an investor’s decision making” and should be referenced in product disclosure statements (PDS).
NZ licensed managers with at least $1 billion in assets must now produce annual climate disclosures under a regime that came into force last year.
While those entities captured by the law must publish annual climate reports on a dedicated registered administered by the Companies Office, almost all of the 17 submissions opposed the extra disclosure obligation mooted by the FMA in July.
Only the Responsible Investment Association of Australasia and the Chartered Accountants Australia and NZ supported the climate reporting multi-document disclosure proposal as lawyers, industry bodies and fund managers lined up in opposition.
“Although there was some support for guidance in this area, we did not see significant uncertainty expressed by reporting entities requiring immediate clarification. We note that similar questions are being considered in Australia with the introduction of its mandatory climate reporting regime, and there may be advantages to consistency of approaches in our two jurisdictions,” the FMA says.
“There is also the question of whether this should be addressed directly in the disclosure regulations. For these reasons we will not be publishing guidance at this time. If we consider that formal guidance seems appropriate in the future we will consult on that in accordance our usual practice.”
In its submission the Boutique Investment Group, chaired by Simon Haines, argued – among other points – that introducing a climate report reference implies “we would also need to equally disclose information about every other piece of legislation that imposes obligations on us that impacts on our overall offering… This would be an unhelpful outcome.”
Legal firm, Dentons, also echoed a common practical complaint that shoe-horning climate references into PDS’ would test the capacity of the legally constrained word maximum.
“Unfortunately, the FMA’s suggested wording, such as for managed investment scheme managers, does not fully take this into consideration,” the Dentons submission says. “At over 60 words, many managers will struggle to fit that wording into a PDS, given most are already up against it when it comes to meeting the prescribed limits.”
Fund managers and other climate-reporting entities also garnered some relief from imminent disclosure duties after the External Reporting Board (XRB) proposed a one-year extension for several extra obligations initially due to kick in this financial period.
The XRB confirmed it would seek a 12-month exemption from both the ‘scope 3’ greenhouse gas disclosure and assurance provisions as well as “anticipated financial impacts” disclosures.
However, the government-controlled accounting standards-setting body nixed its earlier proposal to offer a one-year extenstion for reporting on “transition planning on the basis of hearing strong user demand for this information”.
Meanwhile, the FMA released a review of the inaugural climate-reporting season last week.
FMA head of audit, financial reporting and climate related disclosures, Jacco Moison, said in a release that the review of 70 statements shows entities “put in an enormous effort” to make the first deadline.
“We acknowledge that some have faced challenges, including obtaining reliable data, incurring higher-than expected costs and deciding how to make disclosures in the absence of guidance on certain topics,” Moison said.