• Trustees Corporate Supervision

Jul 9, 2023

The clock is ticking for climate-related disclosures

As of 1 January 2023, New Zealand entered a new era as the first climate-related disclosure (CRD) reporting period commenced for climate reporting entities (CREs) that have balance dates of 31 December 2023. These CREs now have until 30 April 2024 to complete their inaugural climate statements. CRD reporting obligations are staggered by the balance dates of CREs, as shown in the table below.

Table 1: Climate statement deadlines for CREs

Balance date ending

Climate statements filed by

31 December 2023

30 April 2024

31 March 2024

31 July 2024

30 June 2024

31 October 2024

30 September 2024 

31 January 2025

 To recap, CREs are any of the following:

  1. All registered banks, credit unions, and building societies with total assets of more than $1 billion.
  2. All managers of registered investment schemes (other than restricted schemes) with greater than $1 billion in total assets under management.
  3. All licensed insurers with greater than $1 billion in total assets or annual premium income greater than $250 million.
  4. Listed issuers of quoted equity securities with a combined market price exceeding $60 million.
  5. Listed issuers of quoted debt securities with a combined face value of quoted debt exceeding $60 million.
  6. Authorised Bodies, who are managers of registered schemes and operate under the licence of another manager, where the total assets under that licensee (including assets of all authorised bodies) exceeds $1 billion.

In respect of CREs that are managers of registered investment schemes (managed investment scheme/MIS managers) other than restricted schemes, the wrinkle in climate statement reporting is that it is the balance dates of their schemes that are relevant for indexing their climate statement deadlines to and not the balance dates of the MIS managers, as is made clear in Financial Markets Conduct Act 2013 (FMCA) Part 7A section 461ZC. It should be noted that the section requires climate statements to be prepared per fund and not per scheme (albeit that FMCA Part 7A section 461ZE permits these fund-level climate statements to be consolidated into a single document which would in effect speak for the scheme).  

Regardless of whether a CRE is a MIS manager or not, all entities required to prepare climate statements would be wise not to treat the official filing deadlines as the final dates for completion of preparation. Their climate statements should be completed well before then in order to allow sufficient time to deal with the ramifications of their findings. For example, financial statements might require amendment in light of the findings of related climate statements.

Proper CRD record keeping becomes critical

Commencement of the first climate reporting period has thrown the spotlight onto how CREs are supposed to undertake CRD record keeping for the purposes of completing their climate statements by due dates. The relevant sections on climate record keeping are to be found in FMCA Part 7A, Subpart 2 – CRD Records, sections 461V, 461W, 461X, and 461Y.

The seminal section is 461V, which sets out the legal requirement for CREs, as defined in FMCA Part 7A section 461O(1), to keep at all times proper CRD records, defined in the section as “records that will enable the climate reporting entity to ensure that the climate statements of the climate reporting entity comply with the climate-related disclosure framework.”

Given the early days of the CRD regime now in effect, section 461X is a slow burner with its requirement that climate-related records be kept for seven years at minimum after creation. Similarly, in the current lack of CRD records, section 461Y, which is concerned with who may inspect such records - including the directors of the CRE concerned, the Financial Markets Authority (FMA), and any licensed Supervisor of a CRE that is an issuer of debt securities or the manager of a registered scheme - is not yet in full swing. But this section does contain an important reference to the “prescribed manner” in which CRD records must be kept.

This reference circles back to section 461W, which states at subsection (1), “Every climate reporting entity must keep the CRD records in the prescribed manner (if any).” The Ministry of Business, Innovation & Employment (MBIE) is running a consultation, open until 12 July 2023,  on a set of regulations that will prescribe the manner for keeping CRD records, having produced a cabinet paper on the matter in February 2023. 

Climate reporting consultations underway

Another couple of rounds of consultations are relevant to CRD record keeping and reporting.  At the beginning of May, the External Reporting Board (XRB) officially launched its much awaited Climate-related Disclosures Staff Guidance (Guidance). At just shy of 100 pages, the Guidance is pitched as addressing the “how and why” of compliance with Aotearoa New Zealand Climate Standards (NZ CS), but comes with the disclaimer that it is not binding on CREs. The XRB subsequently entered into a consultation period concerning how the Guidance is to be adapted into a document more specific to MIS managers, which closed on 30 June 2023.

The results of the XRB consultation will be important for MIS managers who come under FMCA s.461ZC It should be noted that the XRB has stated that the consultation, “is about providing guidance to help MIS Managers with thinking about the disclosure requirements. The disclosure requirements themselves have been published and will not change in the short term.”

The FMA is running consultations of its own with interested parties in respect of:

  1. Proposed exemptions for CREs in liquidation, receivership, or voluntary administration (submissions close on 20 July 2023)
  2. Proposed guidance and expectations for keeping proper climate-related disclosure records (submissions close 7 August 2023)

The proposed guidance on CRD records references FMCA Part 7A Subpart 2 – CRD Records and is comprehensive in order to deal with the climate reporting obligations of all types of CREs, including listed issuers, banks and insurers, and MIS managers. It will be very important for interested parties to participate in this consultation as it will have direct impact on their climate record keeping obligations.

In June 2023 the FMA also issued important guidances and webinar invitations in relation to CRD:

  1. Climate-related Disclosures Monitoring Plan 2023-2026
  2. Climate-related disclosures regime and the use of third-party providers
  3. July webinars - Scenario analysis in the CRD regime

Recognising that tight timeframes and scheduling conflicts for filing climate statements are problematic for some CREs, on 10 July 2023 the FMA published the following announcement:

Under the Climate-related Disclosures requirements of the FMC Act, climate reporting entities (CREs) must prepare and lodge climate statements within four months after their balance date. However, some CREs are facing a timing challenge because they are subject to other reporting obligations that mean climate statements will need to be prepared within three months.  

We are considering using our exemption power to exempt certain CREs from the requirement to include a link to their climate statements in their annual report, with conditions, for a period of two years. 

However, notwithstanding the prospect of a possible exemption, CREs have no time to waste in getting ready for the inevitable.

Taking into account the huge momentum building up for driving along CRD reporting at the XRB, the FMA, and MBIE, CREs need to start engaging now with their auditors on their CRD disclosures, if they have not done so already, and considering necessary changes to their climate-related reporting and record-keeping at both at senior management and board levels. CRE boards need to be across these rapid changes in what is required under auditing, legislative and regulatory standards in order to be able to provide appropriate sign off, not least because CRE directors are empowered, and arguably implicitly expected, to inspect the climate records of their CREs by section 461Y of FMCA Part 7A Subpart 2. It should also be remembered that there are actually two streams of work to get underway, one being the inaugural climate statement and the other being the inaugural greenhouse gas emissions independent assurance, which has a separate deadline for coming into practice falling on 27 October 2024. The latter may need some pre-assurance work to be done by auditors and, if so, this matter should be raised with auditors promptly to confirm.

Non-CRE climate reporting obligations come to the fore

There may be some who feel that they have dodged a bullet in not having been classified as a CRE. However, it should be noted that both the XRB and the FMA have drawn attention to the fact that existing accounting rules can require due consideration of the materiality of climate risks to the preparation of compliant financial statements. In its Guidance the XRB dedicates a section to risk management (pp. 56-7) which refers readers to resources outside of the New Zealand CRD regulatory framework that could be equally valid and applicable for non-CREs. For example, the section directs readers to the Climate Financial Risk Forum (CFRF), and lists links to six other external resources. At the governance and senior management levels of non-CREs it could be a duty to undertake climate risk assessments that if not performed could lead to legal and regulatory actions.

In its October 2022 publication, Climate risks and the impact on financial statement audits (Climate Risks), the FMA makes the following statement concerning such duty:

All entities – whether or not they are captured by the CRD regime or other mandatory framework – have existing requirements, under current Australian and New Zealand Accounting Standards, to assess what impact, if any, climate change has on their financial statements.

(Climate Risks, p. 1).

The document continues on to state unequivocally the FMA’s expectations of directors and management with respect to climate risk assessment:

Directors and management of an entity are responsible for ensuring that financial statements comply with Accounting Standards. Climate-related risks can impact the key assumptions and estimates that underpin accounting treatments and financial statement disclosures.

We therefore strongly recommend that management and directors consider climate risks throughout their risk assessment process and look at how this impacts the preparation of financial statements (and for CRD reporting entities, climate statements).

While accounting standards do not refer explicitly to climate-related matters, entities must consider these matters when they are material in the context of the financial statements as a whole. Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions made by primary users of financial statements and climate statements.

(Ibid., p. 2)

The primary users of financial statements produced by FMA-regulated entities such as debt issuers and MIS managers will include investors, who may suffer harm from acting - or not acting - with respect to making, retaining or disposing of investments on the basis of flawed information provided within such statements concerning material climate risks. The FMA can be expected to investigate any instances, actual or potential, of such harm.

Moreover, it will not do to give climate risks a once-over-lightly in deciding whether they are material to an entity regulated under the FMCA. The document goes on to state:

When documenting and supporting climate risk disclosures in financial statements, we expect entities to focus on the following:

  • Preparation of high-quality technical papers for all material areas impacted by climate risk. This includes materiality assessments and accounting considerations of decisions made to support financial statement disclosures.
  • Adequate documentation in minutes of board and audit committee meetings that includes discussions, analysis and conclusions for accounting areas impacted by climate change.

Due to the challenges and inherent uncertainty in key assumptions, these documents will be critical for the entity to maintain proper accounting records to support the material disclosures in the financial statements.

Where decisions are made that items are deemed immaterial, these decisions should also be included in the documentation. Materiality is not universal, and how entities are impacted by climate risk may be dependent on their particular industry, and not all entities will be affected in a similar way.

Entities should also consider how their information and communications related to climate change comply with laws and regulations, and if their messages align across their various communications including the messages in the financial statements. Auditors will be looking at areas of non-compliance with laws and regulations, including assessing matters referred to in other information accompanying financial statements.

(Ibid., pp. 2-3)

It should be abundantly clear from the material quoted above that the FMA expects entities it regulates such as debt issuers and MIS managers to incorporate appropriate climate risk assessments into their financial statements, regardless of whether or not they are CREs. For other types of entities not regulated by the FMA, such as retirement village operators, there could still be obligations arising with respect to disclosing climate risks in the financial statements that they are required to present to their village residents at annual general meetings. Marina and timeshare resort operators could face similar obligations applicable to their financial statements presented at annual general meetings of berth licence holders and accommodation unit owners.

Supervisors’ role in monitoring climate risk compliance

Supervisors are directly involved in monitoring compliance of CREs with the latter’s climate reporting obligations by virtue of the fact that the CRD regulatory regime has been imported into the FMCA, primarily in Part 7A. All of the relevant sections concerned with the CRD regime that appear dispersed within the FMCA can be found conveniently located together within one document in the amending legislation, Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021.

As the FMA is the CRE regulator under the FMCA, and Supervisors have supervisory duties and obligations to perform for which they are responsible to the regulator, it is logical that Supervisors will be hands on concerning their supervision of CRD compliance by their CRE clients. In the initial phase of the CRD regime, this supervision will be primarily directed towards CRE client compliance with FMCA Part 7A Subpart 2 – CRD Records. Hence the importance of the regulations awaited from MBIE that will give effect to FMCA sections 461W(1) and 461Y. Supervisors will be interested in how their CRE clients are complying with their climate record-keeping obligations in the prescribed manner.

Beyond that, and in line with the FMA’s expectations as set out in Climate Risks, Supervisors will need to consider taking an interest in whether the relevancy of climate risk was being appropriately considered for materiality to preparing financial statements and adopting policies and procedures by the directors and senior management of their non-CRE clients. Climate risk has systemic implications for other types of risks faced by supervised entities, such as governance risk concerning the awareness and responsiveness of directors and senior managers to the risks facing their enterprises, and sustainability of those enterprises, as non-exhaustive examples.

At minimum, the risk register of a supervised entity should include climate risk as appropriate and, as the FMA has stated, if it is believed that there are no material climate risks applying, then that conclusion should be properly documented. Complacency towards actual or potential climate risk impacts could invite further risk upon a business, such as legal or reputational risks from making the wrong calls. As noted above, failure to address material climate risks adequately in the financial statements of non-CREs regulated under the FMCA could lead to investor harm. The FMA and Supervisors will be alert to the potential of that adverse outcome.


“The climate change reporting era has decisively begun in New Zealand from the beginning of 2023 and we have now reached the point where the CREs we supervise need to be actively planning ahead for what they are going to do about that if they have not started already,” said Matthew Band, General Manager of Corporate Trustee Services at Trustees Executors.

“CREs have no time left to waste – they need to be getting to grips now with what they are required to do by way of preparation for producing climate statements and obtaining independent assurance of their greenhouse gas emissions.”

“The next few months are critical because of the key milestones that will be achieved within them, such as publication of the XRB’s staff guidance for MIS managers, the outcome of the FMA’s consultations on its proposed guidances concerning proper CRD record-keeping and impaired CREs, and MBIE’s regulations to give effect to FMCA sections 461W and 461Y concerning the prescribed manner in which CRD records are to be kept.”

“Beyond the ambit of the 200-odd enterprises that are CREs, the realisation is also dawning that non-CREs have reporting obligations for their material climate risks under existing official rules for the preparation of financial statements.”

“There is no room for complacency, especially in light of the FMA’s October 2022 guidance concerning its expectations around climate risk reporting obligations pertaining to financial statements for any entity it regulates.”

“The same applies to Supervisors, with the FMA having undertaken to engage with them concerning how they will actively monitor performance of CRD compliance obligations by their supervised CRE clients.”

“As a Supervisor, Trustees Executors will be monitoring not just the compliance of its CRE clients with the FMCA, in particular Part 7 Subpart 2 – CRD Records, but will also be encouraging its non-CRE clients to consider their exposure to material climate risks and the potential need to disclose those risks in financial statements and otherwise address their management through appropriate policies and procedures.”

“We look forward to working with our clients on the tasks that lie ahead in meeting their climate risk obligations successfully at both CRE and non-CRE levels.”

For comment or more information, or to be added to the free email subscriber list of “The Supervisor”, please contact Matt Band at [email protected].

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