Financial Markets Authority says there’s a ‘varying level of quality’ in current climate-related disclosures from companies but it's still early days for the regime

The Financial Markets Authority says conversations with companies about the now mandatory climate-related disclosures (CRD) have been “mainly positive” – despite initial apprehension.

Around 170 financial market participants in New Zealand, including large banks, insurers, investment managers, and listed issuers, are now required to produce annual climate-related disclosures (CRD).

These entities must meet specific asset or revenue thresholds to be subject to this mandate.

When reporting on their annual climate statements the companies have to follow standards from the External Reporting Board (XRB), based on guidelines from the Task Force on Climate-related Financial Disclosures (TCFD). 

The Financial Markets Authority (FMA) is regulating the regime.

Jacco Moison, Head of Auditing, Financial Reporting, and CRD at the FMA, told interest.co.nz on Wednesday that the climate standards and legislation introduced at “rapid speed” had initially caused nervousness among some companies.

Requests for a template or checklist-like system instead of a principles-based one have cropped up in conversations with businesses, he said.

“And unfortunately, we have to tell them hey, these climate standards are not very prospective, they're principle based, and how you comply with it is very much dependent on your own business. There's no kind of, hey, this is a checklist, this is a template. If you follow that, then you will be in compliance,” he said.”

“We can't do too much as well because then we're helping people to prepare these things. We're the regulator, but we are constructive and try to help.”

Moison’s comments about the speed of which the CRD legislation has come through was echoed by remarks made by XRB Chief Executive April Mackenzie during a panel discussion on the CRD regime at a Financial Services Council event last week.

Mackenzie said in the panel that there was a “big sliding scale” in standards setting from rules based to principles based. The XRB had settled on a principles-based approach instead of a rules-based one for CRD reporting in NZ.

“The first interesting challenge is when you move from a voluntary regime to a mandatory regime, there's no underestimating the pain point around that move,” she said.

“When all of a sudden directors and management need to ponder the consequences more closely about what they're reporting and are they meeting the mark.”

Mackenzie added that going that more principles-based way of disclosure reporting meant “we’ve not made it easy”.

“I know that and I acknowledge that,” she said.

What does good look like?

Moison said the CRD was a chance to ask the question of what good “looks like” for climate-reporting entities.

“And is it entities that make advancement into the climate or the ones that actually disclose accurately what they do? So our areas mainly make sure that companies make the right disclosures so that investors or the users of the services can make informed decisions,” he said.

“Businesses will think more about, hey, what risks are impacting their business. And investors will do the same thing – do I want to put my money there or do [I] want to move it to another company?”

Moison added there was a “varying level of quality” that companies currently had in their climate statements – but this was expected from a new regime and it was early days.

“Some people have been doing this for quite some time on a voluntary basis, so that they have the upper hand of the information that they already had, while others are completely new and have to start from scratch, so it's a bit harder for them,” he said.

Sectors which were “more challenged” than others were companies like managed investment schemes who needed to compile their overseas investments they’d made, the data available from these investments and what assumptions had to be made in the disclosures.

Other sectors were more strategically placed.

“The energy sector has been doing this for quite some time, so they're well positioned. Most of their emissions, for example, are in their own control. For them, it might be a bit more business as usual than for some of the other businesses.”

Moison said companies were seeing the CRD as an opportunity to “present themselves in a certain light” and discuss some of the risks they were facing and how they could – collectively – deal with them.

“Because some of these issues you cannot address as a single business and you have to get on board with the industry but also with the government to make changes.”