A group of NZ fund managers is pushing for substantial changes to proposed government mandatory climate change-related financial disclosures.
In a submission on the Ministry of Business, Innovation and Employment (MBIE) climate disclosure proposals, the panel of local fund managers – including Mint and Nikko – argues the hastily-produced proposals would be impractical in their current form.
The government released the climate change disclosure proposals in October with submissions closing last week.
Modeled on the European Task Force on Climate-related Financial Disclosures (TCFD) framework, the government proposals would compel a broad range of entities – covering banks, NZX firms, insurance companies, asset owners and fund managers – to publish their exposure to climate risks.
The government proposal follows a Productivity Commission (PC) recommendation in 2018 to introduce a “comply-or-explain” climate change financial disclosure system in NZ. Kris Faafoi and James Shaw – respectively, Minister of Commerce and Climate Change – lead the charge to implement the disclosure plans.
According to the MBIE discussion document, the PC proposal “was underpinned by two ideas”.
“First, disclosures are a powerful mechanism to focus reporting entities on the impacts of climate change on their own activities,” the document says. “Second, disclosure enables investors to make decisions that accurately reflect the climate risk of those choices.”
While backing the overall concept, the submission says the proposed government climate change reporting system would be difficult for fund managers to implement and too narrow in scope.
“From our perspective, if we are going to be required to spend time, effort and money on some form of climate change disclosure, it is important that this burden translates into some genuinely useful impact on society,” the manager submission says. “An unacceptable outcome would be an end game that sees us being required to produce another expensive report every year that no one reads or acts upon.”
Any fund manager climate change disclosure should be via product-specific documents – such as statements of investment policy and objectives (SIPOs) – and only for retail clients, the submission says.
Furthermore, the fund manager group says the climate disclosure provisions should be extended to large privately-owned enterprises, which make up the majority of the NZ economy.
“If the purpose of the regime is to drive better market awareness of climate related financial risk, in order to drive better environmental decisions by businesses, then public reporting by all large companies should be required,” the submission says.
“In addition, if large private emitters are not covered then this will create an impediment to listing in New Zealand.”
Overall, the fund manager collective says the industry needs more time to assess the impact of the climate change proposals.
“The consultation period has provided our industry with very little time to fully assess the merits of Government’s proposition or to establish common views, relative to the complexity of the climate change question that Government is looking to tackle,” the submission says.
MBIE is due to report back on the submissions early next year before tabling final recommendations with the government.
“If Ministerial and Cabinet approval is given, officials will begin the process of introducing new regulation,” the MBIE document says.