Clim a te-rela ted fina ncia l d isclosures Public consultation - - PowerPoint PPT Presentation

Clim a te-rela ted fina ncia l d isclosures

Public consultation meetings November 2019

• 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

Scientific context

Source: Professor Tim Naish

To keep warming to 1.5°C:

• 45% decrease in global

GHG emissions by 2030

• net zero by mid-

century

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

• pportunities]. 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 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 p rob lem

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

The objectiv e

 R7.3 The Government should endorse the recommendations of the Task Force on Climate-related Financial Disclosures as one 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.

The Prod uctiv ity Com m ission’s recom m end a tions

• We propose new mandatory (comply-or-

explain) disclosure requirements

• The status quo includes directors’ duties,

listing rules, etc.

• 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

• A. The sta tus quo

v ersus new m a nd a tory rep orting requirem ents

• We propose that the TCFD recommendations

should be the ‘comply’ element of a new regime

• 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

• B. Disclosures tha t

w ould sa tisfy a ‘com p ly ’ requirem ent

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

be allowable if the entity analyses and reports 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’

• C. W hen it w ould b e

a ccep ta ble to exp la in

• We propose that the regime should apply to

the entities identified by the TCFD

• 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

• D. W ho it w ould

a p p ly to

• We are seeking your input on whether or not

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?
• E. Exem p tions

• We are proposing that there should be a

stand-alone TCFD report within an entity’s 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

• F. W here d isclosures

should be m a d e

• We are proposing that we should not impose

mandatory assurance obligations, due to the demand and supply-side uncertainties

• This could be reconsidered within three years
• f a regime coming into force, once there is

greater data and certainty

• There may be a case for mandatory assurance
• f GHG emission disclosures
• G. Ind ep end ent

a ssura nce

• We are proposing that a new regime would

come into effect for financial years 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
• H. Com m encem ent

a nd tra nsition

• We do not propose to take the suggested

approach of the Productivity Commission in introducing a standard through the Financial Reporting Act

• We propose it would be better to introduce

the system through an Order-in-Council

• I. The legisla tiv e

m ea ns for im p lem enta tion

• Governments can help to accelerate high

quality disclosure through:

• 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

• J. The role of the

Gov ernm ent

• We are seeking information about the net

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

• K. Rela ted costs

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