Clim a te-rela ted fina ncia l d isclosures Public consultation meetings November 2019
Scientific context • Every 0.5°C of warming matters • At 1.5°C: higher extreme temperatures • increases in the frequency and • intensity of rain, floods, droughts and other extreme weather events sea-level rise and loss of coastal land • loss of species • an increase in ocean acidity • issues with food and fresh water • availability
To keep warming to 1.5°C: • 45% decrease in global GHG emissions by 2030 • net zero by mid- century Source: Professor Tim Naish
There will be significant impacts on economic growth and human health and wellbeing even at 1.5 ° C.
“Investors currently don’t have the information they need [about climate risks and opportunities]. This must change if financial markets are going to do what they do best: allocate capital to manage risks and seize new opportunities. Without the necessary information, market adjustments to climate change will be incomplete, late and potentially destabilising. But with the right information, financial markets can smooth the transition to a two degree world.“ Mark Carney, Governor Bank of England
The p rob lem The market does not have the • information it needs The status quo is not delivering • information at the required pace ‘Voluntary’ disclosures are not fully • effective if they do not result in comparable and consistent reporting
The objectiv e To move to a position where the effects of climate change become routinely considered in business and investment decisions in New Zealand. Disclosures about risks and opportunities that are: Clear • Comparable • Consistent • Timely • Understandable •
R7.3 The Government should endorse the The Prod uctiv ity recommendations of the Task Force on Com m ission’s Climate-related Financial Disclosures as one recom m end a tions avenue for the disclosure of climate risk. R7.4 The Government should implement mandatory (on a comply or explain basis), principles-based, climate-related financial disclosures by way of a standard under section 17(2)(iii) of the Financial Reporting Act 2019. These disclosures should be audited and accessible to the general public.
We propose new mandatory (comply-or- A. The sta tus quo • explain) disclosure requirements v ersus new The status quo includes directors’ duties, • m a nd a tory rep orting listing rules, etc. requirem ents Government intervention will raise • expectations and accelerate progress Largely or solely relying on market forces is • too risky, given the urgency A new mandatory regime will result in • consistent and comparable reporting over time
We propose that the TCFD recommendations B. Disclosures tha t • should be the ‘comply’ element of a new w ould sa tisfy a regime ‘com p ly ’ requirem ent It is regarded as international best • practice It is principles-based and provides • flexibility It will promote clear, consistent and • comparable reporting Other TCFD-aligned frameworks would also be • acceptable
Clim a te-rela ted risks a nd op p ortunities, a nd fina ncia l im p a ct
The TCFD Fra m ew ork
We propose that non-disclosure would only C. W hen it w ould b e • be allowable if the entity analyses and reports a ccep ta ble to exp la in that they see themselves as not being materially affected by climate change, with an explanation as to why In year one it would be permissible not to • provide a full set of TCFD disclosures Aspects of TCFD are challenging, and • some entities may need time to ‘gear up’
We propose that the regime should apply to D. W ho it w ould • the entities identified by the TCFD a p p ly to Entities with public debt or equity • Banks • General insurers • Asset owners • Asset managers • We do not propose that non-listed large GHG • emitters would be in scope
We are seeking your input on whether or not E. Exem p tions • an exemption should apply to smaller entities, where benefits are outweighed by costs If so, should this be based on: • Annual revenue • Total assets • Combination of the two? •
We are proposing that there should be a F. W here d isclosures • stand-alone TCFD report within an entity’s should be m a d e annual report If an entity has assessed that it is not subject • to material climate-related financial risk, this should also be disclosed in the annual report
We are proposing that we should not impose G. Ind ep end ent • mandatory assurance obligations, due to the a ssura nce demand and supply-side uncertainties This could be reconsidered within three years • of a regime coming into force, once there is greater data and certainty There may be a case for mandatory assurance • of GHG emission disclosures
We are proposing that a new regime would H. Com m encem ent • come into effect for financial years a nd tra nsition commencing six months on or after the date the regulations are introduced Example: Regulations introduced 1 July 2021 • Come into effect 1 January 2022 • First disclosure in FY 22/23 •
We do not propose to take the suggested I. The legisla tiv e • approach of the Productivity Commission in m ea ns for introducing a standard through the Financial im p lem enta tion Reporting Act We propose it would be better to introduce • the system through an Order-in-Council
Governments can help to accelerate high J. The role of the • quality disclosure through: Gov ernm ent Publishing guidance and education • material, for example on scenario-analysis Monitoring and reporting on disclosures • We are seeking views on which government • agency/agencies should be responsible for which roles
We are seeking information about the net K. Rela ted costs • cost implications of preparing TCFD reports on a mandatory basis If a company is already carrying out TCFD- • aligned analysis due to directors duties and other obligations, additional cost from complying with this regime will be minimal We anticipate costs may be materially • different for different classes of reporting entities
Giv e y our v iew s by 5p m , 13 Decem b er w w w .m fe.gov t.nz CRFD@m fe.gov t.nz
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