New regime to extend regulator's responsibilities
The Financial Markets Authority (FMA) has welcomed the third passing of the Financial Sector (Climate-related disclosures and Other Matters) Amendment Bill, which will extend its responsibilities.
Under the new climate-related disclosure (CRD) regime, certain entities, called climate reporting entities (CREs), are required to produce annual climate statements identifying and reporting on the impact of climate change on their organisations and disclosing greenhouse gas emissions.
The legislation aims to ensure that CREs will routinely consider the impacts of climate change on their investment, lending, and insurance underwriting decisions while the FMA monitors them and enforces the new legislation.
“We welcome the new legislation which establishes a mandatory disclosure regime that requires significant financial sector entities to identify and report on the impact of climate change on their organisations,” said FMA director of capital markets Sarah Vrede.
The new regime involves around 200 entities, comprising:
- Large, listed issuers of quoted equity securities or quoted debt securities (over $60 million in market capitalisation or quoted debt, respectively. Issuers listed on growth markets are excluded);
- Registered banks, credit unions, and building societies with total assets over $1 billion;
- Licensed insurers with total assets over $1 billion or annual gross premium revenue over $250 million; and
- Managers of registered schemes, such as Kiwisaver schemes and investment funds (other than restricted schemes), with greater than $1 billion in total assets under management.
For the next step of implementation, the External Reporting Board (XRB) will develop climate reporting standards based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The board expects to issue the first climate standard by December 2022. Therefore, climate statements will be required to be produced from early 2024 (at the earliest) for annual reporting periods starting on or after January 01, 2023.
Meanwhile, the FMA plans to issue high-level guidance for CREs on compliance expectations by December 2022 and provide more detailed guidance throughout calendar year 2023.
“Our initial regulatory approach will be focused on supporting climate reporting entities and other relevant stakeholders as they prepare for the new regime,” Vrede said.
“In the early stages of the new regime, enforcement action is likely to be focused only on serious misconduct, such as failure to produce climate statements or where climate statements are false or misleading.”