New Zealand: Mandatory Climate-Related Financial Disclosures Proposed for Financial Sector

(Oct. 12, 2020) On September 15, 2020, the New Zealand Minister for Climate Change, James Shaw, announced that the government would introduce legislation requiring the financial sector to report on climate risks. He stated that “New Zealand will be the first country to introduce a mandatory climate-related financial disclosure regime.”

The Ministry of Business, Innovation and Employment (MBIE) explained that

[t]he goal of mandatory climate-related financial disclosures is to:

  • promote greater transparency and more accurate pricing signals in the market[,]
  • incentivise low-emissions investment[, and]
  • create a level-playing field for businesses already considering climate change in their longer-term risks.

According to Shaw’s announcement, the reporting requirements, which will be introduced through an amendment to the Financial Markets Conduct Act 2013, will apply to

  • All registered banks, credit unions, and building societies with total assets of more than [NZ]$1 billion [about US$660 million].
  • All managers of registered investment schemes with greater than [NZ]$1 billion in total assets under management.
  • All licensed insurers with greater than [NZ]$1 billion in total assets under management or annual premium income greater than [NZ]$250 million [about US$164.5 million].
  • All equity and debt issuers listed on the NZX.
  • Crown financial institutions with greater than [NZ]$1 billion in total assets under management.

Shaw stated that “[o]verseas incorporated organisations would also be required to disclose in their New Zealand annual reporting,” and that “[t]he $1 billion threshold will make sure about 90 per cent of assets under management in New Zealand are included within the disclosure system.” In terms of timing, he stated that “[i]f approved by Parliament, financial entities could be required to make disclosures in 2023 at the earliest.”

According to the Ministry for the Environment, “[r]eporting would be against a standard that would be issued by the External Reporting Board. The standard would be developed in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).” Those recommendations were set out in a final report issued by the TCFD in June 2017 and ”are structured around four thematic areas that represent core elements of how organisations operate,” being

  • governance
  • strategy
  • risk management
  • metrics and targets

The Ministry stated that “[t]he recommendations are considered international best practice for climate-related financial reporting and are already being used in New Zealand and other countries on a voluntary basis.”

Under the system, “[d]isclosures would be made on a ‘comply-or-explain’ basis. This means that where information is not available or disclosures are not possible following best endeavours, reporting organisations can explain rather than disclosing.” The Financial Markets Authority, “the New Zealand government agency responsible for enforcing securities, financial reporting and company law as they apply to financial services and securities markets,” will be responsible for monitoring and enforcement of the system.

The TCFD was established in 2015 by the Financial Stability Board (an “international body that monitors and makes recommendations about the global financial system”) “to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders.”

The New Zealand External Reporting Board (XRB) creates “standards to give New Zealanders confidence and trust in the financial reporting of entities in the corporate business, public and not-for-profit sectors,” according to the XRB website. A key aspect of its approach is to “adopt international standards which are modified to reflect unique New Zealand conditions.”

The government’s decision to introduce the mandatory climate-related financial disclosure system in New Zealand followed the release, in October 2019, of a discussion document jointly produced by MBIE and the Ministry for the Environment. The consultation period ended in December 2019.

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