New Zealand will introduce requirements for asset managers and financial institutions to report on the risk that climate change poses to their business and portfolios, in what the country says is a world first.
Minister for climate change James Shaw said this week the rules will be implemented on a “comply-or-explain basis” and based on the Task Force on Climate-related Financial Disclosures framework, sister publication Infrastructure Investor reports.
The NZ government’s External Reporting Board will develop one or more reporting standards, with businesses required to comply with those or explain why they cannot.
If approved by parliament, the changes are likely to come into effect from 2023 at the earliest.
Shaw said that the requirements will cover around 200 organisations and will mandate that they have to make annual disclosures covering governance arrangements, risk management practices and strategies for mitigating any impacts from climate change.
The new reporting requirements will apply to:
- all registered banks, credit unions and building societies with total assets of more than NZ$1 billion ($673 million; €570 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 AUM or annual premium income greater than NZ$250 million;
- all equity and debt issuers listed on the NZX;
- and Crown financial institutions with greater than NZ$1 billion in total AUM, such as NZ Super Fund.
Overseas incorporated organisations will also be required to make disclosures in their New Zealand annual reporting.
“Many large businesses in New Zealand do not currently have a good understanding of how climate change will impact on what they do,” Shaw said in a statement.
“The changes I am announcing … will bring climate risks and resilience into the heart of financial and business decision making. It will ensure the disclosure of climate risk is clear, comprehensive and mainstream.
“Australia, Canada, the UK, France, Japan and the European Union are all working towards some form of climate risk reporting for companies, but New Zealand is moving ahead of them by making disclosures about climate risk mandatory across the financial system.”
The NZ$1 billion threshold will ensure that around 90 per cent of assets under management in New Zealand are included within the disclosure system, the government said.
NZ Super Fund said it supported mandatory reporting on climate change performance and risk and welcomed the changes.
Matt Whineray, chief executive at NZ Super Fund, said in a statement: “The materiality of climate risk is accepted and therefore it is absolutely reasonable to seek better disclosure. Currently there is not enough information in the public domain about how companies in New Zealand are identifying, managing, governing and reporting on material business risks and opportunities related to climate change.”
The superfund said it would release its first TCFD report next month and that it would like to see the requirements extended to all private companies over a certain size, as well as businesses listed on the NZX.
“As a long-term investor, we must consider how the NZ Super Fund’s portfolio, and the companies it invests in, will respond to the risks and opportunities stemming from climate change. The general adoption of TCFD reporting will help investors and the public understand how well individual businesses and the wider New Zealand economy are placed to meet the challenge of a changing climate,” Whineray said.
“Over the past few years, we have set and met goals for reducing the fund’s carbon exposure. The report we will release in October will also contain new carbon reduction targets for the fund to meet.”