On 13 April 2021, Commerce and Consumer Affairs Minister, David Clark, said New Zealand is first in the world to introduce a law that requires the financial sector to disclose the impacts of climate change on their business and explain how they will manage climate-related risks and opportunities.
The Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill has been introduced to Parliament and received its first reading last week.
“It is important that every part of New Zealand’s economy is helping us cut emissions and transition to a low carbon future. This legislation ensures that financial organisations disclose and ultimately take action against climate-related risks and opportunities,” Minister Clark said.
“Becoming the first country in the world to introduce a law like this means we have an opportunity to show real leadership and pave the way for other countries to make climate-related disclosures mandatory.”
Climate Change Minister, James Shaw, said the law is another step towards a climate-friendly, prosperous future for New Zealand.
“Climate change will have a profound impact on businesses all over Aotearoa New Zealand. There are activities and assets that these businesses are involved in that will not hold their value in a low carbon world, simply because they emit too much climate pollution and contribute to the climate crisis,” Minister Shaw said.
“Similarly, there are technologies and activities that will cut emissions and become hugely valuable to the low carbon economy of the future.”
“Requiring the financial sector to disclose the impacts of climate change will help businesses identify the high-emitting activities that pose a risk to their future prosperity, as well as the opportunities presented by action on climate change and new low carbon technologies,” he commented.
The Bill will make climate-related disclosures mandatory for around 200 organisations, including most listed issuers, large registered banks, licensed insurers and managers of investment schemes.
Once passed, disclosures will be required for financial years commencing in 2022, meaning that the first disclosures will be made in 2023.
“One way of reading the Climate Change Commission’s draft advice is as a warning that high-carbon investments will be increasingly risky as we get closer to meeting the Government’s climate targets,” Minister Shaw said.
“We simply cannot get to net-zero carbon emissions by 2050 unless the financial sector knows what impact their investments are having on the climate. This law will bring climate risks and resilience into the heart of financial and business decision making.”
Reporting will be based on the Task Force on Climate-related Financial Disclosures (TCFD) framework, which is widely acknowledged as international best practice.
Minister Clark added: “Many businesses face significant physical and transitional risks relating to climate change, and while some businesses have started publishing reports about how climate change may affect their business, strategies and financial position, there is still a long way to go.”
There are four main elements to the Bill:
- It introduces mandatory climate-related disclosures for most listed issuers, along with large registered banks, licensed insurers and registered managers of investment schemes.
- It requires the disclosures to be made in accordance with climate standards that will be issued by the External Reporting Board, or XRB.
- The Financial Markets Authority will be responsible for the independent monitoring and enforcement of the relevant reporting entities’ compliance with the new reporting standards.
- The XRB will be able to issue guidance material on environmental, social and governance reporting and other wider aspects of non-financial reporting.
More information can be found here.