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New Zealand’s government is proposing mandatory climate-related risk disclosures, introducing a bill last week that would compel banks and insurers to divulge climate risks to investors.  

The proposed legislation will require large lenders and insurance companies to begin collecting data from April next year in order to meet mooted disclosure requirements for the 2023 financial year. 

The move means New Zealand will be the first country to mandate reporting of climate risks by the financial sector, according to the environment minister, James Shaw. 

“Australia, Canada, 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,” Shaw said in a statement last week.

France already mandates climate disclosures from many investment and pension funds, and the UK government launched a consultation last month on a statutory instrument that would compel all listed and large private companies and limited liability partnerships to make climate disclosures. 

New Zealand’s planned law would initially apply only to what the business ministry believes will be around 200 companies: banks, insurers, investment scheme managers and equity and debt issuers listed on the Wellington stock exchange. 

“Becoming the first country in the world to introduce a law like this means we have an opportunity to show real leadership and pave the way for other countries to make climate-related disclosures mandatory,” commerce and consumer affairs minister David Clark said in a statement last week. 

“Requiring the financial sector to disclose the impacts of climate change will help businesses identify the high-emitting activities that pose a risk to their future prosperity, as well as the opportunities presented by action on climate change and new low carbon technologies,” Shaw said. 

The New Zealand legislation will also apply to foreign financial institutions with branches in the country. Overseas banks with a local subsidiary holding at least NZ$1bn in assets and foreign insurers with a local entity bringing in more than NZ$250mn premium revenue would be captured by the proposed law. 

The New Zealand entities of Bank of China, Citibank, HSBC and JP Morgan would all exceed the NZ$1bn assets threshold, their most recent annual disclosure statements show. 

Although the exact reporting requirements are not yet known, Pauline Ho, a special counsel with law firm Dentons Kensington Swan in Auckland, says the importance of primary industries to New Zealand’s economy means financing relating to agriculture and horticulture will likely be a major subject of disclosure. 

The country’s top exports are dairy, meat and forestry products. Giant dairy exporter Fonterra, New Zealand’s largest company by revenue, has committed to capping greenhouse gas emissions from farming at 2015 levels until 2030.  

Parliament backs bill

While Labour backs the bill, Ho says there could be tensions between Labour, the Greens and other parties over the detail and extent of the reporting requirements, which will be finalised by the External Reporting Board, the national accounting standards body. 

Shaw, a key driving force behind the plan, is leader of the Green party, which is not in a formal coalition with the ruling Labour party led by Prime Minister Jacinda Ardern.

“I think that’s where there could be amendments in terms of what is the disclosure reporting going to actually look like,” Ho tells GTR. “Because no doubt, I think people like the minister for the environment will want to go further, where I think the other political parties favour a less detailed approach.”

The bill received its first reading in parliament last week with the support of all but 10 of the 120 representatives. The bill has been handed to a parliamentary committee, which is due to hand down a report in August after fielding public submissions. 

Ho says the financial sector is likely to make strong submissions on the penalties for non-compliance – which the bill currently caps at NZ$5mn for businesses – and may ask for more time until the requirements kick in due to a recent flurry of new regulatory requirements on the country’s banks. 

Both the New Zealand and UK standards will be based on recommendations by the Financial Stability Board’s Task Force on Climate-Related Disclosures, which are based on four pillars: governance, strategy, risk management, and metrics and targets.  

The bill is expected to become law later this year and the External Reporting Board has said it aims to have standards ready for the 2023 financial year.  

“There is a real chance that Climate Reporting Entities will be required to collect relevant climate-related data to enable them to meet their reporting obligations from early 2022,” law firm Russell McVeagh says in a briefing.  

“As such, while Climate Reporting Entities’ reporting obligations will not appear in their reporting as a matter of regulatory compliance until the FY2023 reporting season, much of the information and data underlying the required climate-related disclosures may need to be collected from early 2022.”

Under the plans being consulted on in the UK, accounting periods that begin after April 6, 2022 will be captured by the reporting requirements.