Climate-related financial disclosure to be mandatory for NZX and financial services sector

The New Zealand Government confirmed it is seeking to make climate-related financial disclosures mandatory for all publicly listed companies and large financial services organisations.

What you need to know:

Climate change poses a major risk to the stability of financial systems globally and there is increasing pressure on organisations to provide greater transparency with respect to their exposure to climate-related financial risk. In New Zealand currently, organisations provide limited or no information on the implications of climate change risk to their business, or are reporting in inconsistent ways.

Mandating climate-related financial disclosures for large New Zealand entities is expected to achieve greater transparency, enable climate risk to be adequately priced in capital markets using materiality based comparable information, and help the Government in achieving its zero carbon target by 2050.

Who is impacted?

MfE has indicated that around 200 entities in New Zealand will be required to make disclosures. This includes:

  • all registered banks, credit unions, and building societies with total assets of more than $1 billion
  • all managers of registered investment schemes with more than $1 billion under management
  • all licensed insurers with more than $1 billion total assets under management, or annual premium income greater than $250 million
  • all equity and debt issuers listed on the NZX
  • Crown financial institutions with greater than $1 billion total assets under management.

Overseas incorporated organisations will be required to make disclosures if they are over the thresholds indicated above.

Large, privately held organisations are exempt from the disclosure requirements.

What reporting will be required?

Impacted organisations will be required to comply or explain with the disclosure reporting requirements, which will be based against standards issued by the External Reporting Board (XRB). These standards will be developed in line with the Task Force on Climate Change-related Financial Disclosures (TCFD) recommendations, and will require organisations to assess the risks and opportunities of climate to their business across four thematic areas: Governance, strategy, risk management, metrics and targets.

When will this take effect?

While this amendment to the Financial Markets Conduct Act (2013) still needs to be approved by Parliament, impacted organisations could be required to make disclosures as early as 2023.

The XRB intends to move quickly in developing the reporting standards including the development of industry specific disclosure requirements. They will be developing materiality criteria and hope that the ones that already exist in financial reporting will be sufficient, but that still needs to be tested.

Source: PWC NZ