So what will Australia’s four biggest banks and major companies like Wesfarmers, BlueScope Steel and Woolworths do now after the NZ Parliament passed a law last week making reporting on climate risks mandatory in two years’ time?
On October 21, the New Zealand parliament passed the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill.
In a world first the new law will require large banks and other financial institutions, as well as large listed companies, to report on climate risks.
It is going to pose problems for a lot of companies that operate on both sides of the Tasman – will they run just one set of accounts covering both economies (in the case of the big four banks for example), or will they run one set of climate change-based accounts and standards in NZ and another in Australia?
That assumes that Australia does not follow the NZ example and amend the Corporations Act and other laws to make reporting mandatory and along the lines envisaged across the Tasman.
The big four banks are particularly exposed (as are insurers like Suncorp and IAG) because they have substantial businesses in both countries.
The NZ Government’s act says disclosure will be required according to the standard for accounting periods that start on or after January 1, 2023.
Moody’s ratings group says the new rules “are credit positive for New Zealand’s financial institutions because they will make institutions that are not already doing so assess the impact of climate-related risks.”
“Because the new rules are likely to improve the transparency and comparability of climate-related risk disclosures, it will also be benefit investors when assessing the impact of climate-related risks across different financial institutions.
“The development of these reporting standards could also provide institutions with new ways to assess climate risks and to increase the visibility of such risks within their governance and risk frameworks,” Moody’s says.
The new requirements will apply to all banks, insurers, credit unions, building societies and asset managers with total assets of more than $NZ1 billion ($US673 million).
The requirements will also apply to listed companies with a market capitalisation of more than $NZ60 million. The government has indicated that around 200 businesses are included in the regime.
That means companies (other than the big four banks, Commonwealth, ANZ, NAB and Westpac) will be caught such as Fonterra, Kathmandu, Woolworths, Coles, Wesfarmers, Air New Zealand, Fletcher, BlueScope and others.
The legislation says that the NZ External Reporting Board (or XRB), an independent government entity responsible for accounting, auditing and assurance standards in New Zealand, will be responsible for developing the reporting standards.
The regime will be based on the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD) framework, which has 11 key disclosures covering the following areas:
- Governance – institutions are required to describe how their boards oversee climate risk, and the role of management in assessing and managing climate risk.
- Strategy – how identified climate-related risks and opportunities impact their businesses, strategy and financial planning. They must disclose the resilience of their strategies to different climate-related scenarios, including a scenario where action is taken to limit the rise in the global average temperature to two degrees Celsius, or less, above the pre-industrial average.
- Risk Management – describe their processes to identify, assess and manage climate risks, and how these processes are integrated into their overall risk management frameworks.
- Metrics and Targets – disclose the metrics used to assess, and targets used to manage, climate risks and opportunities. Disclosure of greenhouse gas emissions is also required.
The XRB says it expects to commence consulting on Strategy and Metrics and Targets in March 2022, before issuing a standard by the end of 2022.
