Among 200 or so entities most NZ fund managers are sketching out inaugural mandatory climate reports due to be tabled next year.
Motivated by the theory that ‘what gets measured, gets managed’ and modelled on the global Taskforce for Climate-related Financial Disclosures (TCFD) framework, the NZ experiment has inevitably triggered anxiety about the practical consequences for those captured by the 2021 legislation.
And the world-first climate-reporting regime has already generated a mountain of material including standards developed by the External Reporting Board (XRB), a joint industry body guide and a document dump from the Financial Markets Authority (FMA) topped up last week with a ‘scenario analysis’ information sheet.
Andy Moy, vice president of statutory and regulated documents for the ASX-listed software firm, Objective, said the sheer scale of climate-reporting requirements could be overwhelming for some.
“Rather than information gaps I think the challenge is information overload,” Moy said. “Knowing exactly what is required to report on, what data providers to use, and who can provide authoritative guidance is particularly hard. You could have the best Net Zero program in the world but still fall short of the regulator because you did not tick a specific box.”
Objective has adapted its existing Keystone cloud-based disclosure product to accommodate the XRB and TCFD standards, he said.
“It’s been a natural extension for our customers to start using it for voluntary and now mandatory climate-related disclosure,” Moy said
“We help draft, verify and publish all types of disclosure and critical governance documents. In many ways climate-related disclosure is more of the same – our mission is to save the time, expense, and stress of producing accurate and compliant documents. But there is certainly more data dependency associated with climate-reporting.”
While the growing body of global climate-reporting literature, including TCFD, informs the process, he said the Objective climate-reporting system relies heavily on the specific guidance and rules laid down in each jurisdiction.
“We also believe there is strength in numbers, and we participate in industry bodies such as the Financial Services Council (FSC) and its working groups. We have certainly found the FSC Knowledge Base excellent for helpful advice and guidance.”
NZ might be first in to bat with a mandatory regime but many companies and asset managers globally have been knocking out climate reports – typically following the TCFD template – on a voluntary basis for several years.
Despite some regional differences, Moy said “our expectation is that climate-reporting will be more or less the same all over the world, with the early movers like New Zealand helping set the legislative agenda for others”.
“We’re also seeing the Australian Government follow suit with climate-related disclosure passing legislation soon.”
The Objective Keystone product has a broad target market including the insurers, banks and corporates captured under the NZ law, but the software also drills down to the fund portfolio level of climate-reporting required for local licensed investment managers with at least $1 billion in assets.
“Keystone also has some smarts to implement reusable content so that you do not have to maintain separate versions of repeated information,” he said.
Nonetheless, climate-reporting entities can’t outsource their legal responsibilities to external providers. The FMA, for example, published a third-party provider guide for climate-reporting firms in its June series, noting the importance of “due diligence practices and risks of failing to follow proper process when engaging” external support.
Moy said about 30 financial services firms, including in both Australia and NZ, use the Keystone software, which is “agnostic with respect to the source of climate risk data so companies can be free to select the best provider for a specific requirement”.
“Keystone then helps by putting governance controls around the specific use of that data,” he said.
Listed on the ASX in 2000, Objective operates in multiple ‘reg tech’ sectors covering more than 1,000 government organisations across five countries.
The company employs 75 people in NZ including the Keystone software product manager, Moy said.
“I’d say Keystone has been led by homegrown Kiwi innovation and entrepreneurship. It just happens to have a global footprint, much like climate risk.”