The Bill is an omnibus bill that amends the Financial Markets Conduct Act 2013 (FMCA), the Financial Reporting Act 2013, and the Public Audit Act 2001. It establishes a mandatory climate-related disclosure reporting regime for certain qualifying entities. The Bill’s commencement is staggered, with the majority of the Bill taking effect within a year and the other requirements expected to come into force within 3 years.
To summarise, under the regime climate reporting entities (CRE) will be required to prepare climate statements in accordance with applicable climate standards, obtain an assurance engagement if those statements relate to greenhouse gas emissions, lodge those statements and any applicable assurance engagement and keep proper records. The new regime is expected to apply to approximately 200 organisations in New Zealand, with the first statements expected by 2024.
Climate Reporting Entities
The new disclosure requirements apply to all CRE. These are reporting entities under the FMCA that are considered to have a higher level of public accountability than other FMCA reporting entities, including:
- a manager of a registered investment scheme where, as at the balance date of the two proceeding accounting periods, the total assets of all the investment schemes managed by that manager exceed $1 billion;
- a listed issuer that has quoted debt or equity securities (or both) with a total face value that exceeds $60 million as at the balance date of each of the two preceding accounting periods, except where the securities are only quoted on the growth market;
- a registered bank, credit union, or building society that, as at the balance date of each of the two preceding accounting periods, has combined assets between it and any of its subsidiaries that exceed $1 billion; and
- a licensed insurer that, as at the balance date of each of the two preceding accounting periods, has between it and any of its subsidiaries combined assets that exceed $1 billion or a combined annual gross premium revenue that exceeds $250 million.
In instances where the registered bank, credit union, building society or licensed insurer is a body corporate incorporated outside of New Zealand, the same test will apply but for the overseas person’s New Zealand business or its group of New Zealand businesses.
Climate related disclosure obligations
Keep proper climate-related disclosure records
Under the Bill, every CRE must keep at all times records that will enable the CRE to ensure its climate statements comply with the applicable climate standards. These records must be kept for at least seven years, in accordance with any prescribed manner, and be available for inspection.
Each CRE must prepare, within four months after its balance date, a climate statement or group climate statement that complies with the climate-related disclosure framework for that balance date. A copy of this statement must then be lodged, within 4 months of its balance date, to the Registrar of Financial Service Providers (Registrar). In addition, information about the climate statement is to be made available in the annual report on the company register.
CREs must ensure that parts of climate statements that disclose greenhouse gas emissions are reviewed by a qualified assurance practitioner. The report produced from the assurance engagement must be lodged with the Registrar within four months of the CRE’s balance date.
What are the Climate Standards?
The Bill permits the External Reporting Board (XRB) to prepare and issue climate standards. These standards provide the reporting standards that CREs must follow in their disclosures. The standard is developed in line with the recommendations of the Task Force on Climate-related Financial Disclosures. These standards are regarded as international best practice for climate-related financial reporting.
On 20 October, the XRB released the Governance and Risk Management sections of the proposed climate standards for consultation. These standards can be read in full on the XRB website. If you wish to comment and provide feedback on these sections, you will have until 22 November 2021. The next consultation period is in March 2022, which is on the proposed Strategy, Metrics and Targets sections.
A draft is expected by July 2022, with the first standard expected to be released by December 2022. Consequently, entities will be required to disclose according to the climate standard for accounting periods that start on or after 1 January 2023. This means that the first climate statements would be required in 2024.
Failure to comply with the Bill has significant implications for individuals and organisations. These range from civil to criminal liability. The penalties include:
- fines up to $50,000 for infringements offences, such as failure to lodge a climate statement within four months of balance date or failure to keep records in a prescribed manner;
- civil pecuniary penalties up to $5 million for an organisation or $1 million for an individual that fails to keep proper records or fails to prepare and/or lodge their climate statements; and
- criminal penalties for knowingly failing to comply with a climate standard, including fines up to $500,000 and imprisonment for up to five years for an individual, and in any other case, fines not exceeding $2.5 million.
CREs have new obligations under the mandatory climate reporting regime and the consequences of failing to comply are severe. While the first statements are not expected until 2024, we recommend that CREs start paying close attention to the proposed XRB standards, provide any feedback to the XRB regarding the proposed standards and ultimately, prepare themselves for their new mandatory reporting obligations.
If you have any questions about this Bill or the XRB standards, please get in touch with Hesketh Henry’s Business Advice Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.