New Zealand Government Introduces World-First Climate-Reporting Disclosure Laws
On April 12, 2021, the New Zealand government introduced an omnibus bill into parliament, aiming to introduce mandatory requirements for businesses in the financial sector to disclose the impacts of climate change on themselves and develop strategies to manage climate change risks and opportunities. The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill 2021 (Climate Bill) is touted by the New Zealand government as a "world first" piece of legislation.
In a speech at the first reading of the Climate Bill, New Zealand Minister of Commerce and Consumer Affairs, David Clark, noted how in December 2020, the New Zealand government declared a climate emergency, committing the nation to urgent action on reducing emissions. He said:
The main aim is to move to a position where the effects of climate change become routinely considered as a part of business investment decisions. It'll contribute towards that goal we've set of becoming carbon-neutral by 2050. Effectively, it does this by requiring around 200 of the largest and most important businesses participating in the New Zealand financial markets to disclose clear, comparable, and consistent information about the risks and opportunities presented by climate change…
The Climate Bill achieves this change by amending the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013 and the Public Audit Act 2001—seeking to ensure that the effects of climate change are routinely considered in business, investment, lending and insurance underwriting decisions. The disclosures will be made in accordance with standards issued by New Zealand's External Report Board (XRB), which will also have the ability to issue guidance on a wide range of environmental, social and governance matters that can be applied by businesses on a voluntary basis. The entities in New Zealand that are required to make disclosures under the Climate Bill are:
- All registered banks, credit unions and building societies with NZD 1 billion or more in assets;
- All managers of registered investment schemes and crown financial institutions with NZD 1 billion or more in assets under management;
- All licensed insurers with greater than NZD 1 billion in assets under management or annual income more than NZD 250 million; and
- All companies listed on the New Zealand Stock Exchange (NZX).
Disclosures would be made on a "comply-or-explain" basis in each businesses' public annual financial filings, meaning that where there is insufficient information to allow a disclosure, reporting organizations can explain rather than disclose. Disclosure on greenhouse gas emissions will need to be independently audited, and the disclosures must meet the standards set by the XRB—meaning that the precise content of disclosures is not yet known.
It remains to be seen whether the climate-related disclosures required by the Climate Bill will have a meaningful impact on the behavior of businesses within New Zealand, and whether more businesses will sign up to the voluntary scheme for reporting. The Climate Bill is currently being considered by a select committee of the New Zealand government, which will publish a report on the bill in August 2021—the bill will likely be passed after this report. If passed, the Climate Bill will represent a significant development in the law, and may act as a guide for things to come in other jurisdictions around the world.
