Fund managers ask for a pause in auditing of climate reports

Boutique Investment Group (BIG) chair Simon Haines says under proposals sent to commerce minister Andrew Bayly and climate minister Simon Watts, fund managers would still include emissions data without assurance and a warning statement.

Under New Zealand’s climate standards, auditing will become mandatory for greenhouse gas emission (GHG) disclosures for reporting periods ending Oct 27, 2024 and beyond.

But based on NZ fund managers’ experience of trying to get assurance earlier, the group wants the deadline pushed out until at least one year after Australian fund managers have been required to do the same.

Fund managers don’t report on their own emissions but the aggregate of the companies and non-listed entities they invest into. They mainly use third party data providers and there is a wide range of inconsistency between data collection methods and the level of disclosure available globally.

For example a typical treasury has risk allocated from across its whole economy, which shows up as 10 times more risk than a share in a company, which isn’t true, says Haines.

Where assurance is possible, there is the potential to create false confidence because the numbers are based on significant assumptions such as future carbon prices making assurance difficult, counterproductive and in many cases impossible,” says Haines.

“When you stack it all up, there's a huge amount of speculation involved and an audit might show it's reasonable, but it gives a false sense of precision.”

In the first year of reporting, climate reporting entities (CREs) have been able to opt out of reporting emissions but some have done so. Haines says Nikko has included metrics but with warning statements.

“Even where assurance is possible I would include a warning statement. With climate disclosure this year, we had lots of warning statements around numbers because they were coming up with muddy answers.”

In the short term, global data providers have no incentive to raise the standard of the data, while NZ is one of the few countries in the world requiring assurance to the level that climate reporting entities are subject to, he says.

“In five years time, there will be a far better quality of reporting from the data providers.”

Cost to customers

In the meantime audit costs are high with some managers having spent hundreds of thousands of dollars for year one. In many instances these costs will fall directly on the customer.

Another obstacle is shortage of practitioners for the volume of reporting entities, and the time involved to produce climate statements including quantitative and qualitative analysis, drafting, review and approval.

“Factoring in time for an assurance process would be at the latter end of this process and also at the same time of financial statements.”

Haines says while NZ wants to be a leader at climate reporting, it shouldn’t get too far ahead and ultimately out of sync with other jurisdictions.

“Climate change is a global problem and the financial system is globally interconnected.

The letter warns that auditing requirements end up coming at a significant cost, it will be difficult to impossible to meet, in many cases, and doesn’t seem likely to achieve anything for the client or the planet. The group is aware that some banks also share its views.

Signatories are Aurora Capital, Booster, Clarity Funds, Consilium, Fisher Funds, Fundrock, Generate, Harbour, Kernel, Mercer, Mint, NZ Funds, Nikko, Oyster, Pie Funds, Salt, Smartshares and Trust Investments.