Our submission on proposed rollbacks to climate-related disclosures
We have submitted on the proposed changes to the climate-related disclosures regime.
The Government is consulting on options that would significantly weaken the regime - including halving the number of listed entities currently included. Rather than most of the options considered in the Discussion Document, we have outlined alternative amendments that would better align NZ’s settings with those of Australia, and ultimately improve the efficacy of the regime.
In 2021, Aotearoa New Zealand became one of the first countries in the world to introduce a climate related disclosures regime. It covers around 200 entities, including large NZX-listed issuers, registered banks, licensed issuers, credit unions, building societies, and managed investment scheme managers. Its purpose is to help make New Zealand an attractive destination for international capital, and to help our companies be well positioned for a net-zero future.
(For more background on the CRD Regime, read our past blog post and letter to the Government here)
The climate-related disclosures regime is an important tool for managing and responding to climate-related financial risks. It is also relatively new - so it is no surprise that some of the settings may need to be adapted and tweaked now that the first year of mandatory reporting has ended. However, many of the proposals considered in the Discussion Document are blunt instruments and a knee-jerk response to some of the loudest critics of the CRD Regime. They also risk undermining the goals of the climate related disclosure regime, and will mute the price discovery ability of investors.
Rather than weakening the CRD Regime and creating considerable instability when the regime is already up and running, we support making smaller changes - with an eye to preserving the efficacy of the CRD Regime as much as possible.
Some of our key points, as detailed in the submission, include:
Threshold to be a CRE: The proposal to increase the threshold for CREs is based on a simplistic comparison with Australia’s regime, in an attempt to reduce regulatory arbitrage. However, the risk of regulatory arbitrage is illusory, including because the coverage of Australia’s regime captures a wider range of entities than the Discussion Document proposes. Westrongly encourage the the Government widen the definition of Climate Reporting Entity, so that it is more similar to that used in Australia.
Wait for the XRB’s Consultation on Differential Reporting: A better way of adjusting the regime would be for the XRB to introduce differential reporting, to ensure that the climate-related disclosure requirements are well-suited to different types of entities and sectors, and to reduce the burden on smaller entities. Amendments to the climate related disclosures regime should not pre-empt the XRB’s consultation on differential reporting standards, which is due to come later this year.
Director’s liability: Proposals to remove or significantly reduce directors’ and/or CREs liability are an overreaction to the real risk of liability. It will significantly reduce incentives on CREs and their directors to provide accurate and substantiated Climate Statements. Instead, greater support and guidance should be provided to CREs and their directors to help with compliance.