On April 12, 2021, the New Zealand government tabled an omnibus bill in parliament, aimed at introducing mandatory requirements for companies in the financial sector to disclose the impacts of climate change on themselves and develop strategies to manage the risks and opportunities associated with climate change. The Financial Sector (Climate Related Disclosures and Other Matters) Amendment Bill 2021 (Climate Bill) is being touted by the New Zealand government as a legislative “world first”.
In a speech at the first reading of the climate bill, New Zealand Minister of Trade and Consumer Affairs David Clark noted that in December 2020 the New Zealand government declared a climate emergency. , urging the nation to take urgent action to reduce emissions. He said:
The main objective is to achieve a position where the effects of climate change become systematically considered as part of the investment decisions of companies. It will contribute to our goal of becoming carbon neutral by 2050. Indeed, it does so by requiring approximately 200 of the largest and most important companies participating in New Zealand’s financial markets to disclose clear, comparable and consistent information. information on the risks and opportunities presented by climate change …
The climate bill achieves this change by amending the Financial Markets Conduct Act 2013, the 2013 Financial Information Act and the Public Auditing Act 2001– seeking to ensure that the effects of climate change are systematically taken into account in business, investment, lending and insurance underwriting decisions. Disclosures will be made in accordance with standards issued by New Zealand’s External Report Board (XRB), which will also have the ability to issue guidance on a wide range of environmental, social and governance issues that may be applied by companies. on a voluntary basis. . The entities in New Zealand that are required to make disclosures under the Climate Bill are:
- All registered banks, credit unions and building societies with NZD 1 billion or more in assets;
- All managers of registered investment funds and Crown financial institutions with at least NZD 1 billion in assets under management;
- All licensed insurers with assets under management exceeding NZD 1 billion or annual income exceeding NZD 250 million; and
- All companies listed on the New Zealand Stock Exchange (NZX).
Disclosures would be made on a “comply or explain” basis in each company’s public annual financial records, meaning that when there is not enough information to allow for a disclosure, reporting organizations may explain rather than disclose. The disclosure of greenhouse gas emissions will need to be independently audited and the disclosures must meet the standards set by the XRB, meaning the precise content of the disclosures is not yet known.
It remains to be seen whether the climate-related disclosures required by the climate bill will have a significant impact on business behavior in New Zealand, and whether more businesses will join the voluntary reporting program. The climate bill is currently under consideration by a select New Zealand government committee, which will release a report on the bill in August 2021 – the bill will likely pass after that report. If passed, the climate bill will represent an important development in law and could serve as a guide for things to come in other jurisdictions around the world.
