New climate reports will give investors a different perspective

The Financial Markets Authority (FMA) has published a “What You Need to Know” guide aimed at investors, lenders and other creditors, financial advisers and others who use or communicate climate-related information.

It covers what information climate statements will include, key considerations and context about that information, legislative requirements, and whether the CRD regime will help reduce greenwashing.

The External Reporting Board (XRB) has put out “Navigating Climate Statements”, a more detailed explanation of climate statements highlighting topics such as uncertainty, comparability and context when evaluating and judging the information they contain.

FMA head of auditing, financial reporting and CRD, Jacco Moison, says climate statements will contain information about climate reporting entities' (CREs’) climate risks and opportunities not necessarily covered in financial statements. They will provide a different perspective and tell a type of story to help investors assess the impact climate change could have on a CRE’s business.

The purpose of the CRD regime is to encourage entities to routinely consider the short, medium and long-term risks and opportunities that climate change presents for their activities, to enable entities to show how they are considering those risks and opportunities, and to enable investors and other stakeholders to assess the merits of how entities are considering those risks and opportunities.

Moison says the information in individual climate statements will vary hugely depending on the nature of the reporting entity’s business and the possible impact of climate change.

“With risk and opportunities, you’re looking at the business, what it does, and how those specific risks impact the business going forward. They can  be very different. Fund managers might be able to easily get rid of an investment and replace it with another investment. But if you are producing something that is carbon intensive and you have to reduce that, it might be a lot more challenging. So there may be a lot more information in those statements.”

Geographical location might also have a huge impact on climate statement disclosures. A company based on the coast may have assets at risk of flooding which will have to be included.

“That’s the thing about these disclosures. Entities can be impacted very differently while circumstances are reasonably the same.”

Effect on greenwashing

Moison says because the CRD requires entities to support climate-related disclosure with evidence,  CREs will probably take more of a conservative approach when making claims of being green and sustainable elsewhere.

“Climate statements are slightly different than some of the other communications that entities might put out. There’s a whole framework and a regime that requires entities to produce this information in a structured way, set by standards. Directors are directly accountable if the information is incorrect and misleading, so I think this will drive some behaviour.

“In the past there might have been really ambitious statements not necessarily backed up by information.”

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021, covers ‘large entities’ including listed companies with a market cap exceeding $60 million, and banks, insurers, credit unions, building societies and MIS managers with more than $1billion. Annual climate statements must comply with Aotearoa New Zealand Climate Standards (Climate Standards) issued by the XRB.

Climate statements will be lodged on the CRD register of the Companies Office.

Under the Climate Standards, the ultimate aim is to support the allocation of capital towards activities that are consistent with a transition to a low-emissions, climate-resilient future.

The FMA is responsible for monitoring and enforcement of the CRD regime. It will monitor whether climate statements comply with the Financial Markets Conduct Act 2013 and the Climate Standards.