13 February 2023

'5 mins with the FMA' podcast #5: Climate-related disclosures

In this episode, we discuss New Zealand’s new climate-related disclosures regime with the manager of climate-related disclosures, Jenika Phipps.

Organisations covered (known as Climate Reporting Entities or CREs) will soon have to make annual disclosures covering governance arrangements, risk management, strategies and metrics and targets for mitigating and adapting to climate change impacts.

This applies to the larger publicly listed companies, big insurers, banks, non-bank deposit takers and investment managers.

The FMA is responsible for independent monitoring and enforcement of the regime, providing guidance about compliance expectations, and reporting on monitoring activities and findings.

We talk about who is covered by the regime, what’s happening worldwide and what businesses should start thinking about as the new rules come into force this year.

Podcast Transcript

Host: Kia ora everyone, welcome to 5 minutes with the FMA, a podcast by New Zealand’s Financial Markets Authority Te mana tātai Hokohoko

Today we’re talking about the new Climate Related Disclosures regime, which came into force on January 1 2023. The FMA has been charged with the task of monitoring and enforcing these new rules, so to find out more we’re joined by Climate Disclosures Manager at the FMA Jenika Phipps.

Host: So, Jenika, who is covered by this new regime?

Jenika Phipps: So there’s around 200 entities, (and we call these entities climate reporting entities) and they include large, listed issuers of debt or equity but it must be over $60m, and also large financial institutions and they must have assets over $1b, so this means the biggest insurers, banks and investment funds are captured and that includes KiwiSavers within those investment funds.

And although 200 may seem like a small number, actually there’s going to be a much a much bigger “flow on effect” to other New Zealand businesses and this is because these climate reporting entities need to report details around their supply chain and customers which when you start to think of how far the reach of all of our major banks and insurers is - the total number of businesses being asked questions or needing to provide information for this regime is actually much larger.

Host: So these new entities - what exactly are they being asked to do?

Jenika Phipps: Basically they’ll have to prepare and make public an annual climate statement about the effects of climate change on their organisations as well as the effect that their organisation is having on the climate by disclosing their greenhouse gas emissions – and there’s also additional requirements around record- keeping and this is to make sure that organisations can substantiate their disclosures and is also what the FMA will be looking at as part of our reviews.

Host: OK so will these entities be required to be more environmentally friendly or reduce their emissions from the outset? Is that the goal here?

Jenika Phipps: Yeah this is a good question, and one that we would like to make sure that there is clarity on. This regime does not tell or enforce entities on how to run their organisations - instead it provides information to help investors make more informed decisions. With the aim of better allocating capital so they can make a decision about if this company doesn’t want to reduce their emissions - would they like to invest in them?

Host: How do NZ’s climate reporting rules compare with what’s happening overseas?

Jenika Phipps: Overseas is a rapidly developing area, New Zealand was one of the first in the world to implement legislation around the requirements to create and disclose climate information, however the US, Europe, the UK and Australia have all rapidly advanced in this area in the last year or so and are at different stages of development, for example the UK has already implemented a regime which is a “comply or explain’’ regime compared to us – which is mandatory, but these are all evolving at the moment, and so there will be mandatory regimes over the next few years in all those jurisdictions.

Host: So to conclude, what are the key messages you’d like to get across to industry?

Jenika Phipps: So we’ll be updating the FMA’s implementation approach to climate-related disclosures soon, and this will lay out some more detail of our reasonable expectations, and also around how we’ll be regulating the disclosures, and we’ll also be releasing detailed guidance around record keeping – that’s a really important part of this new regime to make sure that entities are able to substantiate those disclosures.

Host: Is there anything else you’d like to get across?

Jenika Phipps: I think just don’t underestimate the scope of what’s required, this is really new and there’s a lot of capability building that needs to go on just to understand what these requirements are asking for, so getting started early, and making sure that all the decision-makers and entities understand the requirements – so there’s already a lot of education going on this year and last year - around board upskilling in the climate area and that’s really important but also senior management looking at ways to make sure you understand the scope of the requirements.

Host: Thanks Jenika, that’s Jenika Phipps and that’s another Five Minutes with the FMA. There’s more about the new Climate Related Disclosures regime on our website at fma.govt.nz.

We’ll bring you more FMA Insights next month, until then hei kānō mai – bye for now.