The Ministry for Business, Innovation and Employment has released a discussion document proposing adjustments to the climate-related disclosures regime.
We believe that reporting regimes can change outcomes for the better. Reporting enables entities to communicate how they are governed and be transparent on their performance in issues of interest to their stakeholders. Reliable reporting is the foundation of our capital markets system and enables stakeholders to make informed decisions. It is also a less interventionist and lower cost option in the toolkit of government to encourage desired behaviours and enable entities to leverage off information they are already collecting, versus requiring entities undertake specific action.
Climate reporting, while emergent, should aim for the same quality and rigour as the financial reporting it sits alongside that allows us to have trust in our public interest entities. Climate change is one of the most significant issues of our time and stakeholders should have confidence in information being provided by New Zealand entities. That is why KPMG voluntarily reports in line with the External Reporting Board’s (XRB) Climate Standards and is looking to obtain independent assurance of this reporting. The risks and the opportunities arising from climate change are not going away and climate statements are critical pieces of information that need to be explored and shared with stakeholders for an accurate view of an entity’s long-term strategy and resilience.
What does our submission say?
Our overarching view is that the time and resource required to implement and then interpret legislative change will create more uncertainty and further stress while losing the benefit of experience with the current regime reporters have gained in the last year. Entities would still be required to report in the meantime, making it likely that they would incur further costs overall.
We believe that the XRB's intention to consult on differential reporting this year has the potential to address the issues outlined by MBIE. The FMA has also expressed that it will exercise discretion and adopt a gentler enforcement approach in the early years of the regime. These mechanisms are the most effective and efficient ways of building on the world-first legislation we have in place while making the regime fit for purpose for New Zealand entities.
So in response to the key questions asked by the consultation:
1.
We do not agree changes are required to the reporting thresholds. In our view the issues raised could be more effectively and efficiently dealt with through standard-setting and in particular through the implementation of a differential reporting framework.
2.
We do not agree changes are required to the director liability settings. Our view is that climate reporting liability should be equivalent to financial reporting liability. The Financial Markets Authority, as the regulator, has also expressed that it will exercise discretion to allow for a learning curve and adopt a more gentle enforcement program in the early years in the regime.
3.
We do not see value in encouraging subsidiaries of multinationals to file their parent company climate statement in New Zealand. In our experience, the parent company reports generally provide no or very limited information about their New Zealand operations.
New Zealand entities have faced challenges with climate reporting, not least because it is new, complex, and important. As early adopters, there have been first-mover challenges where the usual level of precedent for reporters to follow in preparing their reports does not exist. But legislation that makes tweaks without considering the current and ideal future regimes in full and in depth will not help lessen the load. We have tools through the XRB and FMA to make adjustments as we learn. We can also benefit from observing our neighbours and global reporting adoption, therefore taking adequate time to develop consistent, complementary regimes.
We look forward to the XRB's progress on differential reporting settings and will support efforts to keep us moving forward while tailoring the regime as we learn.
