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Responding to the threat of market failure: mandatory climate-related financial disclosures

November 01, 2019

Contacts

Partners Jania Baigent, Don Holborow, Helen Smith, Josh Cairns
Special Advisors Mark Baker-Jones
Senior Associates Victoria Anderson, Mace Gorringe, Joanna Lim

Climate change (inc Zero Carbon Bill and Emissions Trading Scheme) Financial services regulation

Recognising that “high quality climate-related financial disclosures can make a significant contribution to transforming New Zealand to a low-emissions, climate-resilient economy”,[1] the Government has just released a discussion document on climate-related financial disclosure.

It raises the proposal that New Zealand adopt a new mandatory (comply-or-explain) disclosure system and would apply to all entities issuing public debt or equity (listed issuers).[2]

Summary of the key proposals:

  • TCFD: Captured entities will be required to implement the Task Force on Climate-related Financial Disclosure (TCFD) recommendations on a comply or explain basis.[3] Disclosure would be by way of stand-alone TCFD report within the entity’s annual report.
  • Public issuers and financial institutions captured: The requirement would apply to all entities issuing public debt or equity (listed issuers), banks, general insurers, asset owners (institutional investors), asset managers (investment managers) - with a possible exemption for smaller entities.
  • New legislation: Implementation would be through new legislation.
  • Commencement: The requirements would come into effect for financial years commencing six months on or after the date regulations are introduced. Examples in the document are for legislation to come into effect in 2021 and then for making of disclosure to start in 2023.

The discussion document also canvasses international commentary on climate change and director duties, which points to the need for directors to actively consider how climate change will affect their companies.

Context for the discussion document

This discussion document comes on the back of:

  • the Environment Select Committee’s recommendations last week to Government on amendments to the Zero Carbon Bill requiring reporting on climate-related risk by certain public organisations to align with the TCFD framework;
  • the release by the Aotearoa Circle of its Interim Report of the Sustainable Finance Forum that that sets out why New Zealand needs to shift, urgently, to a sustainable economy; and
  • a legal opinion released by the Aotearoa Circle on the extent to which New Zealand company directors and managed scheme providers are permitted or required to take account of climate change considerations in their decision-making. We provided comments on director duties and climate change earlier this year (click here to read).

Workshops and next steps

The TCFD is an internationally endorsed tool to assist directors in understanding and responding to climate change risk. We recently hosted workshops on the TCFD framework and recommendations and are preparing to hold further workshops for public entities on the TCFD.

Get in touch with our contacts above to discuss how the changes impact your entity, including both risks and opportunities, and for assistance in preparing a submission on the discussion document. Submissions close on 13 December 2019.