Local fund managers will likely gain an exemption from completing current year climate risk disclosure (CRD) statements after the government announced a yet-to-be-legislated nuking of the vexed compliance obligation for the sector.
Under the surprise move last week, Commerce Minister Scott Simpson tabled a full CRD exemption for licensed fund managers rather than a tiered disclosure regime as mooted in an External Reporting Board consultation last December.
But the change has left managers unsure of whether to proceed with 2025/26 period CRDs as the enabling legislation, set to be incorporated within the Financial Markets Conduct Amendment Bill, won’t enter parliament until early next year.
The regulator, however, is moving quickly to clarify the matter for the industry.
Liam Mason, Financial Markets Authority (FMA) evaluation and oversight director, said: “The FMA is currently considering options for relief and we expect to make an announcement shortly.”
The government clawback of the world-first mandatory CRD has been widely celebrated across the local funds management sector that has absorbed significant costs – probably in the order of tens of millions of dollars – in the inaugural 2024 reporting year.
Aside from licensed investment manager carve-out, the government proposals also raise the market cap threshold from $60 million to $1 billion before climate-reporting obligations kick-in for NZX-listed companies.
Simon Haines, Boutique Investment Group (BIG) chair, said that “all fund managers agreed (certainly all those that I have come across) that what we were being asked to produce was not really fit for purpose for a retail audience and that audit was excessively burdensome relative to the value it provided”.
“The active managers also all felt that climate reporting was far too burdensome for the smaller cap listed businesses,” Haines said.
BIG represents compliance specialists of about 20 non-bank-owned local fund managers.
David Ireland, Dentons partner, said a further proposal to cut director liability for climate-reporting breaches was also welcome, removing a huge source of anxiety for boards.
Ireland said the overall revised CRD package represented a “fantastic win” for local fund managers where the regime was something of a “round-hole, square-peg situation”.
Managers that want to continue climate disclosure as a potential market differentiator would also have more freedom to report in line with their particular objectives, he said.
However, Ireland said the NZ reforms could create a compliance mis-match for Australian-owned firms as climate-reporting rules for fund managers etc have just been introduced across the Tasman.
While Australia and other jurisdictions such as the UK are bringing in mandatory climate disclosure laws, the US reversed course last week.
In a joint statement, the US Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, junked the ‘Principles for Climate-Related Financial Risk Management for Large Financial Institutions’ put in place in 2023.
Back in NZ, along with the CRD downgrade Simpson also flagged new private markets disclosure categories for fund managers, including KiwiSaver schemes.
“From March 2027, fund managers will need to include [on the Disclose register] whether the asset is in New Zealand or overseas and what asset class it falls into – for example, debt, infrastructure, unlisted equities,” the government statement says. “Investors and funds will gain more information over which funds invest in private assets and how these are performing over time.”
But the government has dropped other plans to ease access to private assets for KiwiSaver schemes as per a Ministry of Business, Innovation and Employment (MBIE) consultation launched last September that could’ve seen providers ring-fence illiquid assets in certain situations.
“MBIE received 93 submissions on changes to climate-related disclosures and 44 on enabling KiwiSaver private asset investment,” according to a government statement. “Changes to asset disclosure categories were generally supported. Feedback on other proposals aimed at encouraging private asset investment was mixed and these proposals are not being progressed.”